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Place-Based Productivity and Costs in Science

In: Entrepreneurship and Innovation Policy and the Economy, volume 2

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  • Jonathan Gruber
  • Simon Johnson
  • Enrico Moretti
Abstract
Cities with a larger concentration of scientists have been shown to be more productive places for additional scientists to do research and development (R&D). At the same time, these urban areas tend to be associated with higher costs of doing research, in terms of both wages and land. Although the literature on the benefits of agglomeration economies is extensive, it offers no direct evidence of how productivity gains from agglomeration compare with higher costs of production. This paper aims to shed light on the balance between local productivity and local costs in science. Using a novel data set, we estimate place-based costs of carrying out R&D in each US metro area and assess how these place-based costs vary with the density of scientists in each area. We then compare these costs with estimates of the corresponding productivity benefits of more scientist density from Moretti (2021). Adding more scientists to a city increases both productivity and production costs, but the rise in productivity is larger than the rise in production costs. In particular, each 10% rise in the stock of scientists is associated with a 0.11% rise in costs and a 0.67% rise in productivity. This implies that firms moving from cities with a small agglomeration of scientists to cities with a large agglomeration of scientists experience productivity gains that are six times larger than the increase in production costs. This finding is consistent with the increased concentration of R&D activity observed over the past 30 years. However, although the productivity estimate has only modest nonlinearities, the cost estimates suggest much larger nonlinearities as the concentration of scientists increases. For the most concentrated R&D cities, the difference between productivity gains and cost increases is close to zero.
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Suggested Citation

  • Jonathan Gruber & Simon Johnson & Enrico Moretti, 2022. "Place-Based Productivity and Costs in Science," NBER Chapters, in: Entrepreneurship and Innovation Policy and the Economy, volume 2, pages 167-184, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:14686
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    References listed on IDEAS

    as
    1. Rebecca Diamond & Enrico Moretti, 2021. "Where is Standard of Living the Highest? Local Prices and the Geography of Consumption," NBER Working Papers 29533, National Bureau of Economic Research, Inc.
    2. Carol Robbins & Olympia Belay & Matthew Donahoe & Jennifer Lee, 2012. "Industry-level Output Price Indexes for R&D: An Input-cost Approach with R&D Productivity Adjustment," BEA Working Papers 0090, Bureau of Economic Analysis.
    3. Chang-Tai Hsieh & Enrico Moretti, 2019. "Housing Constraints and Spatial Misallocation," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(2), pages 1-39, April.
    4. Alex Bell & Raj Chetty & Xavier Jaravel & Neviana Petkova & John Van Reenen, 2019. "Who Becomes an Inventor in America? The Importance of Exposure to Innovation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(2), pages 647-713.
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    More about this item

    JEL classification:

    • H0 - Public Economics - - General
    • J0 - Labor and Demographic Economics - - General
    • R0 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General

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