The Equilibrium Allocation of Creative Capital to R&D in a Dynamic Creative Region

Abstract

In this note, we analyze a stylized creative region that is populated by members of the creative class. The representative individual in this region possesses a constant relative risk aversion (CRRA) utility function. The existing creative capital is used to produce a final consumption good and to conduct R&D. We first derive the equilibrium level of creative capital that is allocated to the R&D sector. Next, we show how this level is affected by changes in the parameters and in some of the model constants. Finally, we discuss the policy implications of our comparative statics results.