Rents and Intangible Capital: A Q+ Framework

In recent years, US investment has been lackluster, despite rising valuations. Key explanations include growing rents and growing intangibles. We propose and estimate a framework to quantify their roles. The gap between valuations — reflected in average Q — and investment — reflected in marginal q — can be decomposed into three terms: the value of installed intangibles; rents generated by physical capital; and an interaction term, measuring rents generated by intangibles. The intangible-related terms contribute significantly to the gap, particularly in fast-growing sectors. Our findings suggest care in a pure-rents interpretation, given the rising role of intangibles. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.