Measuring Intangible Capital with Uncertainty

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-speci c technological progress and recursive utility. We use the perturbation method up to second order to solve the model and perform Bayesian estimation using particle lter. The unobeserved times series of intangible capital is estimated through particle smoother. Data from US economy in the postwar period imply that corporations indeed have formed large amounts of intangible capital as Hall (2001) found. The implied expected return on investment in intangible capital is lower than that of physical capital, which implies that intangible-capital intensive rms have a lower expected return. JEL Clssi cation: E44 E27 G12