JACKSON HOLE, Wyo.—The rise of “intangible capital” such as software, patents, intellectual property and innovative business processes explains much of the weakness in private capital investment since 2000, according to new research presented at a conference here. This helps to explain why low interest rates or easier financial conditions after the 2008 financial crisis didn’t boost such investment. Weak investment in physical capital due to inadequate credit or unfavorable tax incentives would require different policy responses than weaker investment “because the composition of the capital stock used by firms has changed over time,” the authors wrote. The authors concluded that intangible capital, “when treated as an omitted factor in production, can fill a substantial part of the gap left by weak physical investment.”Ms. Eberly and Mr. Crouzet argued rising concentration and market share by industry leaders has occurred “hand-in-hand” with their accumulation of intangible capital. The authors concluded different policy responses may be needed to address rising industry concentration owing to the different properties of intangible capital.

Source: Wall Street Journal August 24, 2018 15:56 UTC