The Value of Openness

Abstract

We propose that U.S. cities differ in the value creation by their local firms partly due to differences in city-level openness. As cities differ in their residents’ interest in new ideas and new experiences, local firms differ in their ability to experiment with new products and services and therefore in their ability to create valuable growth opportunities. We measure openness as the likelihood that a city’s radio stations play new music songs. We find that openness varies across U.S. cities and that it can be traced back more than a century. During our 2000 to 2019 sample period, more open cities have more new and successful ventures, a larger fraction of growth firms, and more highly valued firms. Consistent with the proposed mechanism, the valuation of firms is more strongly related to openness for younger than older firms, and young firms in open cities introduce significantly more new products than young firms in less open cities.