Measuring Intangible Capital with Uncertainty
Posted: 19 Dec 2013
Date Written: 2013
Abstract
Intangible capital has arguably become an important component of corporate value. However, it is still an open question whether uncertainty associated with investment in intangible capital is higher or lower than physical capital. We estimate the value of intangible capital in a dynamic stochastic general equilibrium model that features capital adjustment costs, investment-specific technological progress and recursive utility. We use the perturbation method up to second-order to solve the model and perform Bayesian estimation using particle filter. Data from US economy in the postwar period imply that corporations indeed have formed large amounts of intangible capital as Hall (2001) found, but it is very costly to adjust intangible capital investment. Hence the implied investment in intangible capital is much smoother than that of physical capital, and the return on investment in intangible capital is much less risky, which implies that intangible-capital intensive firms have a lower average return.
Keywords: Intangible Capital, Particle Filter, Second-Order Perturbation
JEL Classification: C11, E23, G12
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