Agency in Intangibles
58 Pages Posted: 16 Sep 2018 Last revised: 23 Mar 2020
Date Written: March 19, 2020
I argue that intangible assets promote agency conflicts between outside investors and inside specialists. Their opacity and specialized nature provide a microfoundation for why highly intangible firms underinvest despite great valuations and profitability---a challenge for standard theories. Their development is further shown to be connected contractually to the growth and dispersion of specialists' compensation. The model provides a unified treatment of the economic forces surrounding intangible capital and its predictions are strongly supported in US and international data.
Keywords: intangible capital, dynamic contracting, investment, compensation
JEL Classification: D21, E22, G31, G32, L22
Suggested Citation: Suggested Citation