The Price and Quantity of IT-Related Intangible Capital

The new business practices and information structures associated with IT-related intangible capital (ITIC) account for a significant fraction of the market value of modern firms. We use a newly-constructed IT data series along with Hall’s Quantity Revelation Theorem to create ITIC price and quantity measures in a panel of US firms. We find that that ITIC values dropped significantly after the dot-com bust, but that this was mostly due to fluctuations in price. ITIC quantities rose steadily until about 2000, and then begin to fall but at a slow rate. As a fraction of firms’ total assets, ITIC quantities rose from about 20% in 1995 to about 40% in 2006. We also estimate that ITIC depreciates at a rate of about 7% a year, which is closer to the estimated depreciation rate for physical capital than for R&D capital.

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