WILL IMPROVED TELECOMMUNICATIONS TECHNOLOGY MAKE CITIES, AND INDEED SPACE ITSELF, OBSOLETE?



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.
Indeed, these arguments are not a priori unreasonable. We can already communicate large quantities of written information over long distances at almost no cost, by using information technologies such as email, fax machines, the Internet, and the World Wide Web. Existing technologies even enable us to hold virtual meetings in which people can look at and talk to each other over long distances. If telecommunications are a substitute for face-to-face interactions, then actual physical meetings will decline as forms of telecommunication improve. As face-to-face interactions vanish, cities will lose their role as a physical center that allows people to meet and communicate easily. The informational city, according to the futurists, will disappear once the technology gets good enough.

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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