The Value of Intangible Capital.

• Author: Eberly, Janice

Intangible capital has become a large and increasingly important part of firms' capital stocks and assets, especially over the last three decades. Intangibles include data, patents, copyrights, software, audio and video material, brands, and organization capital. Shares of these assets have risen while the share of physical capital, such as plant and equipment, has fallen, despite an increase in profitability and the return to business capital. This shift has occurred in concert with other major trends, including rising industry concentration and weak productivity growth. The research agenda on these trends that I describe in more detail below includes several coauthors, principally Nicolas Crouzet, and more recently, Andrea Eisfeldt and Dimitris Papanikolaou.

In addition to intangibles' increasing prevalence, we emphasize that they are also fundamentally different from physical capital. Usually, this difference is defined by their lack of physical presence, or intangibility. But that "lack" has important implications.

First, it has traditionally meant that intangibles are difficult to measure and often excluded from accounting frameworks. The difficulty in providing valuations from secondary markets, rapid and uncertain depreciation, and the potential for unexpected obsolescence all contribute to the measurement challenge. At the same time, investments in intangibles create lasting value; coding software, developing algorithms, collecting data, conducting research, and honing methods all incur current costs that create value in the future, which is the defining hallmark of investment.

Nonetheless, lacking a measure of capital, these costs are typically expensed for accounting purposes and the associated capital does not accumulate in firms' accounting data. (1) Thus, productive investment and capital were necessarily undermeasured. The US Bureau of Economic Analysis (BEA) has worked to overcome this deficit by measuring software, R&D, and artistic originals among a limited set of aggregate accounts on intangible capital in the National Income and Product Accounts. Researchers typically create their own firm-level intangible accounts by accumulating firm spending on intangibles into an estimated stock, using a capital accumulation equation, as is done for physical capital. In the research described below, we develop such estimates and compare them to the national accounts data to document and explore the role of intangibles. Figure 1 shows the rising share of intangibles in firm-level data and in the BEA aggregates, as a share of total capital.

The lack of physical presence means that intangibles may produce output differently than physical capital does. How does one use capital that lacks a physical presence? It must be represented or stored in some way, such as on paper or in a computer or server. But the information represented by the intangible can be used many times over--even simultaneously--without disrupting the original capital. This property--nonrivalry--makes it fundamentally different than physical capital. A machine tool cannot be used simultaneously in different factory locations. But a design blueprint, data, or software can. Nonrivalry gives rise to economies of scale and scope in intangibles that are not available to...