The Intangible Divide: Why Do So Few Firms Invest in Innovation?

James Bessen and Xiupeng Wang

Working Papers from U.S. Census Bureau, Center for Economic Studies

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.

Keywords: intangibles; R&D; software; innovation; obsolescence (search for similar items in EconPapers)
JEL-codes: E22 O31 O32 (search for similar items in EconPapers)
Date: 2025-02
New Economics Papers: this item is included in nep-cfn, nep-cse, nep-sbm and nep-tid
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https://www2.census.gov/library/working-papers/2025/adrm/ces/CES-WP-25-15.pdf First version, 2025 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:25-15

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