Working Paper: NBER ID: w28988
Authors: Nicolas Crouzet; Janice C. Eberly
Abstract: In recent years, US investment has been lackluster, despite rising valuations. Key explanations include growing rents and growing intangibles. We propose and estimate a framework to quantify their roles. The gap between valuations — reflected in average Q — and investment — reflected in marginal q — can be decomposed into three terms: the value of installed intangibles; rents generated by physical capital; and an interaction term, measuring rents generated by intangibles. The intangible-related terms contribute significantly to the gap, particularly in fast-growing sectors. Our findings suggest care in a pure-rents interpretation, given the rising role of intangibles.
Keywords: Investment; Intangible Capital; Market Power; Economic Rents
JEL Codes: D25; D4; E22; G31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| investment gap (E22) | rents to physical capital (D33) |
| investment gap (E22) | value of installed intangibles (E22) |
| investment gap (E22) | rents to intangible capital (D33) |
| rising rents and intangibles (R33) | investment behavior (G11) |
| interaction term (C29) | investment gap (E22) |
| composition of investment gap differs across sectors (E22) | contribution from intangibles (O34) |
| rising role of intangibles (O34) | interpretation of rents (R21) |
| estimates lead to lower overall estimates of rents (R21) | user costs of capital (G31) |