Using Enterprise Zones to Attract the Creative Class: Some Theoretical Issues

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) 𝐿 to entrepreneurs who become members. First, we compute the utility maximizing number of entrepreneurs 𝑁 to attract and the optimal provision level of the LPG. Second, if the LPG 𝐿 is chosen optimally, then, given 𝑁, 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.