This paper argues that existing models of urban concentrations are incomplete unless grounded in the most fundamental aspect of proximity: face-to-face contact. Face-to-face contact has four main features: it is an efficient communication technology; it can help solve incentive problems; it can facilitate socialization and learning; and it provides psychological motivation. The authors discuss each of these features and develop formal economic models of two of them. Face-to-face is particularly important in environments where information is imperfect, rapidly changing, and not easily codified, key features of many creative activities. The paper argues that analysis of mechanisms underlying urbanization and localization is likely to be incomplete unless grounded in the most fundamental aspect of proximity: face-to-face contact. The authors propose two analytical models of how face-to-face contact improves the coordination of economic agents. In the first, face-to-face contact overcomes incentive problems in the formation of working partnerships; in the second, it allows actors to evaluate others' qualities and leads to the formation of "in-groups" that support more efficient partnering and increased motivation. These models begin the task of developing a microeconomic theory of face-to-face contact. The paper also discusses the role of face-to-face contact in the coordination of economic activities. It argues that face-to-face contact is a highly efficient technology of communication, a means of overcoming coordination and incentive problems in uncertain environments, a key element of the socialization that allows people to be candidates for membership of 'in-groups' and to stay in such groups, and a direct source of psychological motivation. The combined effects of these features are termed 'buzz'. The authors speculate that there is a superadditivity in these effects, generating increasing returns for the people and the activities involved. Individuals in a buzz environment interact and cooperate with other high-ability people, are well placed to communicate complex ideas with them, and are highly motivated. To be able to reap these benefits in full almost invariably requires co-location, rather than occasional interludes of face-to-face contact. It is unsurprising that people in a buzz environment should be highly productive. Examples of this sort of interaction include joint projects in science, engineering, and research. A large literature demonstrates the existence of localized, industry-specific knowledge spillovers within the science- and technology-based industries. Networks of firms and industries clustered within regions interact more heavily with co-located university-based scientists than with those in other regions. This is associated with higher rates of commercialization than at long distances. Moreover, the various benefits of face-to-face that are established through long periods of co-location are durable: they have been shown to manifest themselves amongst people who then move away but continue to work together, and are much stronger than the contacts between long-distance partners. In many buzz cities there is also cross-fertilization between sectorally-specialized networks. High technology and government have close interactions, for example, and this is why Washington DC has become a major high-technology region. Design and entertainment/communicationsThis paper argues that existing models of urban concentrations are incomplete unless grounded in the most fundamental aspect of proximity: face-to-face contact. Face-to-face contact has four main features: it is an efficient communication technology; it can help solve incentive problems; it can facilitate socialization and learning; and it provides psychological motivation. The authors discuss each of these features and develop formal economic models of two of them. Face-to-face is particularly important in environments where information is imperfect, rapidly changing, and not easily codified, key features of many creative activities. The paper argues that analysis of mechanisms underlying urbanization and localization is likely to be incomplete unless grounded in the most fundamental aspect of proximity: face-to-face contact. The authors propose two analytical models of how face-to-face contact improves the coordination of economic agents. In the first, face-to-face contact overcomes incentive problems in the formation of working partnerships; in the second, it allows actors to evaluate others' qualities and leads to the formation of "in-groups" that support more efficient partnering and increased motivation. These models begin the task of developing a microeconomic theory of face-to-face contact. The paper also discusses the role of face-to-face contact in the coordination of economic activities. It argues that face-to-face contact is a highly efficient technology of communication, a means of overcoming coordination and incentive problems in uncertain environments, a key element of the socialization that allows people to be candidates for membership of 'in-groups' and to stay in such groups, and a direct source of psychological motivation. The combined effects of these features are termed 'buzz'. The authors speculate that there is a superadditivity in these effects, generating increasing returns for the people and the activities involved. Individuals in a buzz environment interact and cooperate with other high-ability people, are well placed to communicate complex ideas with them, and are highly motivated. To be able to reap these benefits in full almost invariably requires co-location, rather than occasional interludes of face-to-face contact. It is unsurprising that people in a buzz environment should be highly productive. Examples of this sort of interaction include joint projects in science, engineering, and research. A large literature demonstrates the existence of localized, industry-specific knowledge spillovers within the science- and technology-based industries. Networks of firms and industries clustered within regions interact more heavily with co-located university-based scientists than with those in other regions. This is associated with higher rates of commercialization than at long distances. Moreover, the various benefits of face-to-face that are established through long periods of co-location are durable: they have been shown to manifest themselves amongst people who then move away but continue to work together, and are much stronger than the contacts between long-distance partners. In many buzz cities there is also cross-fertilization between sectorally-specialized networks. High technology and government have close interactions, for example, and this is why Washington DC has become a major high-technology region. Design and entertainment/communications