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Digital Capital and Superstar Firms

Prasanna Tambe, Lorin Hitt, Daniel Rock and Erik Brynjolfsson

No 28285, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: General purpose technologies like information technology typically require complementary firm-specific investments to create value. These complementary investments produce a form of capital, which is typically intangible and which we call digital capital. We create an extended firm-level panel on IT labor investments (1990-2016) using data from LinkedIn. We then apply Hall’s Quantity Revelation Theorem to compute both prices and quantities of digital capital over recent decades. We find that 1) digital capital prices vary significantly over time, peaking around the dot-com boom in 2000, 2) significant digital capital quantities have accumulated since the 1990s, with digital capital accounting for at least 25% of firms’ assets by the end of our panel, 3) that digital capital has disproportionately accumulated in a small subset of “superstar” firms and its concentration is much greater than the concentration of other assets, and 4) that digital capital accumulation predicts firm-level productivity about three years in the future.

JEL-codes: D24 D25 M21 O32 O33 (search for similar items in EconPapers)
Date: 2020-12
New Economics Papers: this item is included in nep-eff, nep-ict and nep-pay
Note: AP EFG LS PR
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Citations: View citations in EconPapers (13)

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