Shopping externalities and retail concentration: Evidence from Dutch shopping streets

Hans Koster, Ilias Pasidis and Jos van Ommeren ()

No 12216, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Why do shops cluster in shopping streets? According to theory, retail firms benefit from shopping externalities. We identify these externalities for the main shopping streets in the Netherlands by estimating the effect of footfall – the number of pedestrians that pass by – on store owner’s rental income, which is a composite of the effects of footfall on shop rent and on vacancy rates. We address endogeneity issues by exploiting spatial variation between intersecting streets. Our estimates imply an elasticity of rental income with respect to footfall of 0.25. We find that a shop’s marginal benefit of a passing pedestrian is € 0.005. It follows that subsidies to retail firms that increase with the levels of footfall generated by these shops are welfare improving. The optimal subsidy to store owners is, on average, 10 percent of the rent, but is higher for retail firms that generate high levels of footfall. Although explicit subsidies are controversial and difficult to implement, our results seem to justify current policy practices which cluster shops by pedestrianisation of shopping streets or by providing subsidised parking for shoppers.

Keywords: Retail; Shopping externalities; Rents; Vacancies; Agglomeration economies; Footfall (search for similar items in EconPapers)
JEL-codes: R30 R33 (search for similar items in EconPapers)
Date: 2017-08
New Economics Papers: this item is included in nep-com, nep-eur, nep-geo and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Journal Article: Shopping externalities and retail concentration: Evidence from dutch shopping streets (2019)
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