(Co-) Working in Close Proximity: Knowledge Spillovers and Social Interactions

We examine the influence of physical proximity on between-firm knowledge spillovers at one of the largest technology co-working hubs in the United States. Relying on the random assignment of office space to the hub's 251 startups, we find that proximity positively influences knowledge spillovers as proxied by the likelihood of adopting an upstream web technology already used by a peer firm. This effect is largest for firms within close proximity of each other and quickly decays: firms more than 20 meters apart on the same floor are indistinguishable from firms on different floors. This effect appears driven by social interactions. While firms in close proximity are most likely to participate in social co-working space events together, knowledge spillovers are greatest between firms that socialize but are dissimilar. Ultimately, firms that are embedded in environments that have neither too much nor too little diversity perform better, but only if they socialize.