The Agglomeration of Urban Amenities: Evidence from Milan Restaurants

We estimate agglomeration externalities in Milan's restaurant sector using the abolition of a unique regulation that restricted where restaurants could locate. In 2005, Milan abolished a minimum dis-tance requirement that had kept the number of establishments arti-ficially constant across neighborhoods. We find that after 2005, the geographical concentration of restaurants increased sharply and at an accelerating rate. Consistent with the existence of strong and self-sustaining agglomeration externalities, restaurants agglom-erated in some neighborhoods and deserted others, leading to a growing divergence in local amenities across neighborhoods. Restaurants located in neighborhoods that experienced large increases in agglomeration reacted by increasing product differenti-ation. (JEL D62, L83, L88, R32, R52)