The Intangible Divide: Why Do So Few Firms Invest in Innovation?
February 2025
Working Paper Number:
CES-25-15
Abstract
Investments in software, R&D, and advertising have surged, nearing half of U.S. private nonresidential investment. Yet just a few hundred firms dominate this growth. Most firms, including large ones, regularly invest little in capitalized software and R&D, widening this 'intangible divide' despite falling intangible prices. Using comprehensive US Census microdata, we document these patterns and explore factors associated with intangible investment. We find that firms invest significantly less in innovation-related intangibles when their rivals invest more. One firm's investment can obsolesce rivals' investments, reducing returns. This negative pecuniary externality worsens the intangible divide, potentially leading to significant misallocation.
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:
profitability,
investment,
econometric,
company,
technological,
financial,
investing,
investor,
sector,
innovation,
depreciation,
patent,
innovate,
stock,
patenting,
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Annual Survey of Manufactures,
Bureau of Labor Statistics,
National Science Foundation,
Ordinary Least Squares,
Bureau of Economic Analysis,
National Income and Product Accounts,
County Business Patterns,
Current Population Survey,
Longitudinal Business Database,
North American Industry Classification System,
Alfred P Sloan Foundation,
Census Bureau Disclosure Review Board,
Business R&D and Innovation Survey,
Federal Statistical Research Data Center,
National Center for Science and Engineering Statistics
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