USING ENTERPRISE ZONES TO ATTRACT THE CREATIVE CLASS: SOME THEORETICAL ISSUES

Amitrajeet A. BATABYAL

Arthur J. Gosnell Professor of Economics, Department of Economics, Rochester Institute of Technology, Rochester, NY 14623-5604, USA

aabgsh@rit.edu

Seung Jick YOO

Associate Professor, Sookmyung Women’s University, Seoul, Republic of Korea

sjyoo@sookmyung.ac.kr

Corresponding Author

Abstract

We study decision-making by a regional authority (RA) that uses enterprise zones to attract members of the creative class—referred to as entrepreneurs—to its region. The enterprise zones provide a local public good (LPG)  to entrepreneurs who become members. First, we compute the utility maximizing number of entrepreneurs  to attract and the optimal provision level of the LPG. Second, if the LPG  is chosen optimally, then, given  we determine an expression for the utility of an entrepreneur. Third, we calculate how much an entrepreneur would be willing to pay to become a member of an enterprise zone and then discuss the potential existence of an efficient and revenue-neutral equilibrium. Finally, we comment on some theoretical difficulties stemming from the twin facts that the number of enterprise zones created and the number of entrepreneurs attracted to these zones have to be integers.

Keywords: Creative Class, Enterprise Zone, Entrepreneur, Local Public Good, Membership

JEL classification: R11, R58

 pp. 13-19

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