Henry George, author of Progress and Poverty and onetime candidate for Mayor of New York City (he came in second, ahead of Theodore Roosevelt), argued that cities benefit from their density and that the increase in land values is unearned and should be the main place to look for tax revenues to support city services.
So why does city land become more valuable as it grows and becomes more dense? From a consumer perspective, cities offer cultural resources. But from the producer perspective, city density offers advantages for businesses.
Glenn Athey, Max Nathan, and Chris Webber have sought to explain these advantages as contributing to innovation. Their working paper, "Cities and Innovation," is in the tradition of Jane Jacobs's book, The Death and Life of Great American Cities (her book The Economy of Cities is cited) and focuses on how cities contribute to innovation and why cities need innovation policies and approaches.
The paper was sponsored by the Centre for Cities of the British National Endowment for Science, Technology and the Arts (NESTA). This organization describes itself as "the largest single endowment devoted exclusively to supporting talent, innovation and creativity in the UK."
The authors of the paper argue that cities provide three factors that contribute to innovation: proximity, density and variety. These factors help workers share knowledge. They depend on investment in communication and transportation.
Looking closely at UK cities of various sizes, the authors argue that cities obtain values through being hubs or providing links. A hub city like New York City or London has a strong infrastructure that enables markets and business networks to form. A link-oriented city - for example, a smaller university city like Cambridge, Mass. or Cambridge, England - is important because of its strong position in knowledge networks and institutional alliances.
The authors argue that intelligent city policies to encourage innovation can pay off and that local economic-development policies have an advantage over national policies in that they can be tailored to the strengths of the region.