Consumption and Social Life in Cities: Evidence from Germany

This paper examines social agglomeration externalities. Using survey data from the German Socioeconomic Panel, it examines the link between city size and different measures of consumption, social interaction and social capital. There is strong evidence of agglomeration effects in consumption, while positive effects of city size on social interaction and social capital variables seem to some extent to be driven by sorting. Further, using responses to satisfaction questions, the paper analyses whether individuals are compensated for diseconomies of agglomeration by positive agglomeration externalities in other areas. This hypothesis cannot be rejected.