...the documented productivity gains provided by giving knowledge workers space, quiet, and privacy. The classic software management book Peopleware documents these productivity benefits extensively...
Here's the trouble. We all know that knowledge workers work best by getting into "flow", also known as being "in the zone", where they are fully concentrated on their work and fully tuned out of their environment. They lose track of time and produce great stuff through absolute concentration. This is when they get all of their productive work done. Writers, programmers, scientists, and even basketball players will tell you about being in the zone.
The trouble is, getting into "the zone" is not easy. When you try to measure it, it looks like it takes an average of 15 minutes to start working at maximum productivity. Sometimes, if you're tired or have already done a lot of creative work that day, you just can't get into the zone and you spend the rest of your work day fiddling around, reading the web, playing Tetris.
The other trouble is that it's so easy to get knocked out of the zone. Noise, phone calls, going out for lunch, having to drive 5 minutes to Starbucks for coffee, and interruptions by coworkers -- ESPECIALLY interruptions by coworkers -- all knock you out of the zone. If you take a 1 minute interruption by a coworker asking you a question, and this knocks out your concentration enough that it takes you half an hour to get productive again, your overall productivity is in serious trouble. If you're in a noisy bullpen environment like the type that caffinated dotcoms love to create, with marketing guys screaming on the phone next to programmers, your productivity will plunge as knowledge workers get interrupted time after time and never get into the zone.
With programmers, it's especially hard. Productivity depends on being able to juggle a lot of little details in short term memory all at once. Any kind of interruption can cause these details to come crashing down. When you resume work, you can't remember any of the details (like local variable names you were using, or where you were up to in implementing that search algorithm) and you have to keep looking these things up, which slows you down a lot until you get back up to speed.
Here's the simple algebra. Let's say (as the evidence seems to suggest) that if we interrupt a programmer, even for a minute, we're really blowing away 15 minutes of productivity. For this example, lets put two programmers, Jeff and Mutt, in open cubicles next to each other in a standard Dilbert veal-fattening farm. Mutt can't remember the name of the Unicode version of the strcpy function. He could look it up, which takes 30 seconds, or he could ask Jeff, which takes 15 seconds. Since he's sitting right next to Jeff, he asks Jeff. Jeff gets distracted and loses 15 minutes of productivity (to save Mutt 15 seconds).
Now let's move them into separate offices with walls and doors. Now when Mutt can't remember the name of that function, he could look it up, which still takes 30 seconds, or he could ask Jeff, which now takes 45 seconds and involves standing up (not an easy task given the average physical fitness of programmers!). So he looks it up. So now Mutt loses 30 seconds of productivity, but we save 15 minutes for Jeff...