By Jess Gaspar and Edward L. Glaeser
Alvin Toffler, Roger Naisbitt, Nicholas Negroponte, and William Knoke are among the many prognosticators who have weighed in on this topic and generally forecast the end of the need for cities. The basic idea, which appears in various guises, is that ongoing improvements in telecommunications are creating a "spaceless world" in which we will all teleconference or telecommute. These seers assert that electronics will eliminate the need for face-to-face interactions and, therefore, the cities that facilitate those interaction.
Underlying this argument is the questionable assumption that telecommunication technology is indeed a substitute for face-to-face interactions. It is possible that these two forms of information transmission may be complements, not substitutes for one another. If they are complements, then cities and space may become more important as information technology improves.
Often, relationships include contacts that use both face-to-face interactions and telecommunications. Friendships may begin with a phone call but continue (or end) over lunch. In this context, improved telecommunications will have two effects. First, as the futurists argue, improved technology implies that within a relationship, people will be more likely to use technology rather than meet face-to-face. Second, improved technology will lead to more relationships and–as long as some of the new relationships still use face-to-face meetings–more subsequent face-to-face meetings. The first effect tends to make telecommunications and face-to-face contacts substitutes; the second effect tends to make them complements.
Cities, as a common urban location, drive down the costs of face-to-face meetings. If the new electronic media are complementary to face-to-face interactions, they will be complementary to cities as well.
We have developed a model to describe how changes in telecommunications technology may alter the use of face-to-face interactions and the size of cities. We find that improvements in technology can increase the number of face-to-face interactions and the relevance of cities. Our model suggests that an improvement in telecommunications will make cities more appealing in the future, if at a particular point in time urban residents use more telecommunications than rural residents.
Complements or substitutes?
Our model of communications examines the interaction between cost
of time, the intensity (or quality) of relationships, and the
relative costs of telephone and face-to-face interactions. Briefly,
in our model, agents must decide between a private project and
a joint project. Before deciding, individuals learn the return
to their private project and compare it to the expected return
of a joint project. The returns of the match include all possible
gains to the relationship, from information to friendship to financial
gains from an explicit transaction.
If the quality of the match justifies continuing with the project,
the initiator must decide whether the relationship should be carried
out over the telephone (which we mean to encompass all electronic
interactions) or in person. Based on the quality of the match,
the individual must also decide how intense the relationship should
be.
Both face-to-face and telecommunications technologies use a common
input, time, to produce a desired level of match intensity. Time
is available at a given cost. Time spent in telecommunication
contributes directly to match intensity. Face-to-face interactions,
however, require a fixed time component–the time required to set
up a meeting and travel to it–before anything productive occurs.
All subsequent time spent in face-to-face interactions contributes
directly to match intensity. Our crucial assumption is that time
actually spent in face-to-face interactions is more productive
than time spent on the phone. Therefore, face-to-face interactions
possess an advantage over telephones for high-intensity interactions.
Optimal match intensity for each means of communications will
be found by setting returns equal to the marginal cost of intensity,
which is just the marginal cost of time. Since high-intensity
interactions will be chosen for high-quality matches, face-to-face
interactions will be preferred for high-quality matches.
There are two important cutoff points for the quality of a match.
The first is the minimum level of match quality for which any
further contact is sensible. The second is the minimum level at
which face-to-face contact is preferable to telephone interaction.
This level is determined by the point where the telephone and
face-to-face meetings yield equal returns.
Modeling all this mathematically, we find that when telephone
quality improves, relationships are less likely to include face-to-face
contact. This effect makes telephones and meetings substitutes.
We also find that the total number of interactions rises as telecommunications
technology improves. This is true both because the initial contact
becomes cheaper and because the expected returns from those relationships
that use telephones rise.
Our basic question is whether the total amount of time spent in
face-to-face contact will rise with improvements in technology.
Holding the cutoff between phone and face-to-face technologies
constant, we find that the total time spent interacting rises.
This effect makes telephones and meetings complements.
The city and the hinterland
From a communications standpoint, the major difference between
living and working in the city or some point outside the city,
which we will call the hinterland, is that cities facilitate face-to-face
contact. The time cost of face-to-face meetings is lower in the
city than in the hinterland. Likewise, the cutoff point between
choosing telephones and face-to-face interactions will differ
across space because the cost of initiating face-to-face contact
is lower in the city. Hence, people in the hinterland are more
likely to use telephones, conditional upon contact being initiated.
However, we find that more total interactions are initiated in
the city.
Telecommunications improvements can increase the returns to urban
residents relative to hinterland residents because urban dwellers
have more contacts overall, but these improvements can also decrease
the relative returns to urban residents because they are less
likely to use the phone conditional upon having a contact. For
cities to rise in population with improvements in telecommunications
technology, individuals in the city must spend more time in electronic
interactions.
Therefore, the model implies that increases in telecommunications
technology may either increase or decrease city size and face-to-face
interactions, depending on whether substitution or complementarity
effects are dominant. A simple rule of thumb for determining whether
increases in telecommunications will increase city size is whether
telecommunications are used more in urban areas or in the countryside.
The evidence
Statistics on Japanese and U.S. phone usage suggest that people
who live in cities are more prone to use telephones. Worldwide
data on the number of phone lines per household also supports
that view; urbanized countries clearly make more use of telephones.
Further empirical evidence suggests a clear connection between
face-to-face interactions and telecommunications. We found evidence
that most telephone calls are made to individuals who are quite
close physically. We documented a recent rise in business travel
(face-to-face meetings) that has occurred despite, and perhaps
due to, the recent improvement in telecommunications technologies.
Improvements in telecommunications also may have contributed to
the substantial rise in coauthorship among economists, and this
rise in coauthorship assuredly means more face-to-face meetings
than for single author papers.
If telecommunications and face-to-face interactions are substitutes,
then people who are physically closer, and presumably see each
other more often, would need to call each other less often. Conversely,
if face-to-face contacts increase the demand for electronic contacts,
then people who are physically closer should call each other more
often.
U.S. telephone data from the mid 1970s shows that more than 40
percent of phone calls were made to places within a two-mile radius,
and more than 75 percent were made to places within a six-mile
radius. The same effect has been observed in the 1990s in Japan.
One natural interpretation of this finding is that two areas that
are close physically and therefore allow for face-to-face contacts
will also generate more demand for telephone interactions because
face-to-face contacts and electronic contacts are complements.
One measurable form of face-to-face contact is business travel.
Futurists have argued that telecommunications improvements are
making travel obsolete. However, it is also obvious that telecommunications
are in some ways complementary to travel. Early in this century,
hotels were one of the first providers of telephones for their
traveling guests. Modern telecommunications advances (faxes, email,
cellular phones) are also useful for organizing meetings and making
travel easier. Also, as the model suggested, these advances may
have led to more long-distance relationships that then require
face-to-face contact as well.
Using data from various copies of the Statistical Abstract of
the United States and the National Travel Survey, we examined
how business travel has responded to these changes in telecommunications
technology. We documented a significant rise in the raw number
of business trips divided by real GDP since 1970. Because airline
costs fell sharply through this period, we controlled for falling
costs and found that since the mid 1980s, when faxes and then
email became ubiquitous, business travel relative to real GDP
has risen more than 50 percent.
It would be impossible to prove that this change is directly the
result of improved communications technology; the growth of industries
like consulting or other travel-intensive fields might also explain
this growth. Nonetheless, the data does suggest that telecommunications
has not hurt this sharply rising form of face-to-face interaction.
Another piece of highly suggestive evidence looks at the rise
of coauthorship in economics journals. We assembled data on the
percentage of articles published in four journals (American Economic Review, Econometrica, Journal of Political
Economy, and Quarterly Journal of Economics) over three years at decadal intervals (196062,197072, 198082,
and 199092). Between the 1960s and the 1990s, coauthored articles
grew from being a relative rarity (12.1 percent of published articles)
to a majority phenomenon (55.7 percent).
The most striking increases occur for out-of-state and out-of-country
coauthorship. These two groups together grew from representing
4.6 percent of all papers in the 1960s to 27.6 percent in the
1990s. The figures indicate a significant growth in interregional
and international coauthorship, perhaps due to improved telecommunications.
However, this increased globalization has not caused a decrease
in the number of articles coauthored locally. Indeed, the percentage
of articles coauthored with someone from the same school or in
the same metropolitan area has risen from 5.7 percent in the 1960s
to 18.3 percent in the 1990s.
If we include articles coauthored with someone from the same state,
the growth is from 7.5 percent in the 1960s to 28.1 percent in
the 199092 period. Geographically close collaborations account
for almost half of the 43.6 percent growth in coauthorship. Again,
the overall increase in collaboration offers evidence of complementarity.
The improvement in telecommunications may have increased long-range
interaction, but not at the expense of local interaction. Moreover,
since even long-distance collaborations involve significant face-to-face
contact, the increase in telecommunications has probably increased
face-to-face contacts significantly.
Cities remain centers
Information technology may eventually cause a decline in the need
for urban concentration. However, the case is much less clear
than the futurists would have us believe. As telecommunications
improve, the demand for interactions of all varieties should rise,
and the role of cities as centers of interactions should also
increase. After all, the most famous modern agglomeration of industry,
Silicon Valley, has occurred in the industry with the most direct
access to the latest and best information technology. This agglomeration
probably occurs because that industry relies so heavily on interactions
and requires so much knowledge to be transferred across firms
and individuals.
Furthermore, if the value of intense interaction rises, perhaps
because ideas become more complex and hard to communicate, cities
will benefit. Also, if cities are centers of telecommunications
technology, improvements in information technology will increase
the economic role of cities. The rise of the New York multimedia
industry may be a sign of big cities’ comparative advantage in
facilitating the difficult information flows involved in cutting-edge
industries.
Jess Gaspar is a GSB assistant professor of economics. His coauthor, Edward L. Glaeser, is a Harvard University faculty member and a fellow with the National Bureau of Economic Research. A complete version of this article was published in the Journal of Urban Economics 43, (1998):136-56.
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