IT, AI and the Growth of Intangible Capital

51 Pages Posted: 6 Aug 2019

See all articles by Prasanna Tambe

Prasanna Tambe

Wharton School, U. Pennsylvania

Lorin M. Hitt

University of Pennsylvania - Operations & Information Management Department

Daniel Rock

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Erik Brynjolfsson

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Date Written: July 8, 2019

Abstract

General purpose technologies like IT and AI typically require complementary investments in firm-specific human and organizational capital to create value for firms. However, good measures of the stock of this IT intangible capital (ITIC) have remained elusive, as has an understanding of how the accumulation of ITIC contributes to economic growth. We use a new extended firm-level panel on IT skills along with Hall’s Quantity Revelation Theorem to assess the nature and growth of ITIC over the last thirty years. We then examine implications for the current wave of AI investment. Our estimates suggest that ITIC accounted for about 25% of firms’ total assets by 2016 and that this capital is disproportionately owned by small subset of “superstar” firms. During most of the period we examine, these assets depreciated close to the same rate as R&D, but depreciation rates appear to have been accelerating with the diffusion of AI-based innovations. For the recent wave, high market values are associated with AI before they are associated with increased revenues or productivity, suggesting that investors anticipate significant future returns to AI-related intangible assets that are otherwise unmeasured.

Keywords: Intangible Capital, Information Technology, Artificial Intelligence

JEL Classification: D24, M15, O34, L25

Suggested Citation

Tambe, Prasanna and Hitt, Lorin M. and Rock, Daniel and Brynjolfsson, Erik, IT, AI and the Growth of Intangible Capital (July 8, 2019). Available at SSRN: https://ssrn.com/abstract=3416289 or http://dx.doi.org/10.2139/ssrn.3416289

Prasanna Tambe (Contact Author)

Wharton School, U. Pennsylvania ( email )

Philadelphia, PA 19104
United States

Lorin M. Hitt

University of Pennsylvania - Operations & Information Management Department ( email )

571 Jon M. Huntsman Hall
Philadelphia, PA 19104
United States
215-898-7730 (Phone)
215-898-3664 (Fax)

Daniel Rock

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Erik Brynjolfsson

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E53-313
Cambridge, MA 02142
United States
617-253-4319 (Phone)

HOME PAGE: http://digital.mit.edu/erik

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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