The cliche WC story has focused on serendipity and spontaneity that occurs when people casually chat about this and that. This is not "directed search".
POINT #1; Pessimists claim that the rise of WFH-HYBRID work will tax the Water Cooler such that organizations will become less productive.
Counter-Point: The pessimists forget what they learned about self-selection. Workers know themselves, they know when they want to be social and when they want to be left alone. Such workers also respond to incentives. If the boss says; "hey , let's get our creative juices flowing". Workers will respond and be charming and engage on those days.
I claim that there is quantity and quality of F2F interactions. The lazy urban economics productivity literature implicitly assumed that F2F interactions are homogeneous and are just a question of their count. So, if you meet with me 1000 times; the probability we have a breakthrough is 10 times higher than if we only meet 100 times face to face. I reject this. Anyone who has met me knows that sharp diminishing returns kick in -- -in speaking with me!
POINT #2; The Water Cooler is a pre-AI, pre-UBER entity. I am interested in directed search. UBER matches drivers and riders to achieve efficiency criteria. Why can't successful firms introduce a type of UBER AI matching to bring different workers together? Why can't a boss make some recommendations about such matching?
Point #3 Given successful within firm AI matching of Water Cooler Workers, why do they have to meet at work? Is the firm afraid of romance? That would be a funny reason for the persistence of the office!
Point #4; Pessimists claim that we will get into a bad Nash Equilibrium such that social workers will go to the office and discover nobody to chat with as everyone else will be engaging in WFH on that day. In this age of AI Matching, can this misallocation really persist?
So, to summarize this blog post; The Quality versus Quantity tradeoff always exists. Organizations have strong incentives to experiment here to see how to maintain their productivity under different organizational rules. How firms adapt to the new opportunity created by WFH is fascinating.
FINAL POINT: Note that I set up this blog post such that the spontaneous face to face interactions occur by workers who work at the same firm. In this case, there is a residual claimant who has an incentive to get the rules of engagement right.
What happens when workers work at different firms but work in the same city? I doubt that spontaneous F2F is that important for these folks. There isn't that much time in the day. You might say that a Harvard economist and a MIT economist can have coffee and make research magic happen if they both go to work. I accept this example but this is a special example. Do Elon Musk's Tesla engineers hang out at the local bar looking to chat with engineers from other firms?
Since urban and labor economists do not have a real understanding of the production function of knowledge firms , we don't understand how the time allocation equilibrium induced by WFH will evolve over time.
Of course, I do think that small firms will want to agglomerate close to each other for Labor pooling reasons but this is distinct from the gains from F2F interaction.