Sketching out a model of innovation, face-to-face interaction and economic geography

Abstract

This paper investigates the links between face-to-face interaction, the promotion of innovation, and the location behaviour of innovative firms. While face-to-face contact is an essential feature of most innovation behaviour, the importance of the frequency of face-to-face contact for innovation varies significantly according to different firm types. We therefore construct a simple optimization model in order to examine the relationship between the frequency of face-to-face interaction, the costs of land use, and the location of innovative firms. This allows us to distinguish between the types of firms which will be clustered together in space in order to foster innovation, from those innovating firms which will be more geographically dispersed. It will be seen that the model produces theoretical results which are largely consistent with both orthodox neo-classical urban economic models of location and also with much of the theoretical and empirical literature on the geography of innovation. Importantly, however, many aspects of the location of innovative firms which cannot be predicted on the basis of orthodox urban economic models are captured by this model.