Nber Working Paper Series Are Elite Universities Losing Their Competitive Edge?

We study the location-specific component in research productivity of economics and finance faculty who have ever been affiliated with the top 25 universities in the last three decades. We find that there was a positive effect of being affiliated with an elite university in the 1970s; this effect weakened in the 1980s and disappeared in the 1990s. We decompose this university fixed effect and find that its decline is due to the reduced importance of physical access to productive research colleagues. We also find that salaries increased the most where the estimated externality dropped the most, consistent with the hypothesis that the de-localization of this externality makes it more difficult for universities to appropriate any rent. Our results shed some light on the potential effects of the internet revolution on knowledge-based industries. E. Han Kim University of Michigan Business School Ann Arbor, Michigan 48109-1234 [email protected] Adair Morse 701 Tappan Street Ann Arbor, MI 48109-1234 [email protected] Luigi Zingales Harvard University Littauer Center Cambridge, MA 02138 and NBER [email protected]