Measuring urban agglomeration economies with office rents

Urban economic theory points to one measure of agglomeration economies, namely differential land rent in intense clusters of economic activity. The empirical basis for this research is commercial office rents in major office markets of the USA. Using panel data, we estimate models of changes in real office rents for 120 major office markets, in 49 MSAs, over 18 years. Our variable reflecting agglomeration economies is changes in producer service employment. Our results suggest that there are agglomeration economies in CBDs of the larger metropolitan office markets but not in the smaller, and not in any suburban office markets.