richard florida’s creative capital in a trading regional economy a theoretical investigation.pdf

Ann Reg Sci (2010) 44:241–250 DOI 10.1007/s00168-008-0262-7 ORIGINAL PAPER Richard Florida’s creative capital in a trading regional economy: a theoretical investigation Amitrajeet A. Batabyal · Peter Nijkamp Received: 5 July 2008 / Accepted: 28 July 2008 / Published online: 16 August 2008 © Springer-Verlag 2008 Abstract We first construct a theoretical model of a regional economy with two sectors. One sector uses physical and creative capital—in the sense of Florida (The rise of creative class. Basic Books, New York, NY, 2002)—to produce a knowledge good that is traded. The other sector uses physical and social capital to produce a good that is not traded. Second, we provide the first formal analysis of the creative capital accumulation decision faced by individuals in this regional economy and we compute the optimal length of time during which creative capital is accumulated. Next, we determine the relative return to creative capital and we use this return to conduct comparative statics exercises with our model’s four parameters. Finally, we show that for a given interest rate, the relative price of the nontraded good is higher in regional economies where more creative capital is accumulated. JEL Classification I290 · J240 · R110 1 Introduction 1.1 Human, creative, and social capital That physical capital is a salient input in virtually all production processes has been known to economists and to regional scientists for quite some time. In addition to A. A. Batabyal ( ) B Department of Economics, Rochester Institute of Technology, 92 Lomb Memorial Drive, Rochester, NY 14623-5604, USA e-mail: aabgsh@rit.edu P. Nijkamp Department of Spatial Economics, Free University, De Boelelaan 1105, 1081 HV Amsterdam, The Netherlands e-mail: pnijkamp@feweb.vu.nl 123 242