The Response of Creative Class Members to Regions Vying to Attract Them with Subsidies

Amitrajeet Batabyal and Hamid Beladi

MPRA Paper from University Library of Munich, Germany

Abstract: There are no theoretical studies in regional science that examine which region to locate in from the standpoint of a creative class member, given that the pertinent regional authorities (RAs) are competing among themselves to attract the creative class using subsidies. This gap provides the motivation for our paper. This paper’s contribution is that it is the first to theoretically study the regional location choice of creative class members when the RAs of the locations in which they might locate are using subsidies to attract them. Specifically, a knowledge good producing creative class member must decide which of two regions (A or B) to locate his plant in. This good is produced using a Cobb-Douglas function with creative and physical capital. We analyze plant location in four cases. In the benchmark case, we show that the representative creative class member ought to locate his plant in the less expensive region B. Next, we show that a small subsidy to creative capital by region A switches the plant location decision from region B to A. Finally, when both regions grant identical subsidies to creative capital, the representative creative class member is indifferent between locating in regions A and B. So, for identical subsidies to affect the plant location decision, they are better targeted to physical and not to creative capital.

Keywords: Creative Capital; Interregional Competition; Physical Capital; Subsidy (search for similar items in EconPapers)
JEL-codes: R11 R58 (search for similar items in EconPapers)
Date: 2021-02-15, Revised 2021-09-29
New Economics Papers: this item is included in nep-geo and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The Response of Creative Class Members to Regions Vying to Attract Them With Subsidies (2022)
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