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Intangibles and Digital Economy

Paper Session

Friday, Jan. 6, 2017 5:30 PM – 7:15 PM

Sheraton Grand Chicago, Grant Park
Hosted By: Society of Government Economists
  • Chair: Leonard Nakamura, Federal Reserve Bank of Philadelphia

Sharing Economy in the United States and Japan

Wendy Li
,
U.S. Bureau of Economic Analysis
Makoto Nirei
,
University of Tokyo
Kazufumi Yamana
,
Hitotsubashi University

Abstract

The world is replete with underutilized assets and resources, which have motivated firms to create new and more efficient markets by exploiting digital platforms. The trend exhibits a fast growth of sharing economy in service industries across the globe. Additionally, the underutilized assets also motivate technology firms to aggressively invest in enabling technologies. For example, the ultimate goal of Google’s driverless car project reportedly is to eventually rid the need for households to own cars by using rental services. That is, the sharing economy not only can increase the efficiency of underutilized assets but can also accelerate technological progress in the economy. Furthermore, unlike their traditional counterparts, sharing-economy companies have a much higher ratio of intangible assets. A prominent example is Airbnb, where the company has only 600 employees but the number of listed properties has surpassed that of the world’s largest hotel chain.
In this study, using the firm-level data from Japan and the U.S. during the period of 2002 to 2015, we examine the impacts of the sharing economy on hotel and transportation industries in both the U.S. and Japan. There are several key findings from this research: First, firms incorporating and adopting sharing technology have a higher degree of organizational capital intensity and have accumulated a higher stock of organizational capital. Second, the creative destruction of the sharing technology have been shown on the estimated depreciation rates of organizational capital between the two groups. In general, the higher depreciation rate of organizational capital for existing incumbents implies that the value of their organizational capital are losing faster. Third, we show that the sharing technology shock caused a negative impact on the stock prices of existing incumbents but a positive impact on their counterparts adopting the new technology.

Technical Change and Rising Living Standards: Innovation Affects More than GDP

Charles Hulten
,
University of Maryland
Leonard Nakamura
,
Federal Reserve Bank of Philadelphia

Abstract

The purpose of this paper is to expand the discourse on the relation between innovation and living standards. The current discussion largely proceeds within a framework that views innovation as a supply‐side phenomenon, but the digital revolution is much more than this. It is increasingly about new goods that provide enhanced utility to consumers, as well as vast amounts of information that allow them to get greater value per dollar spent. Or, as Schmidt and Rosenberg say in their book on How Google Works, “the internet has made information free, copious, and ubiquitous.” The supply side view of innovation has struggled with this type of innovation.

The Solow productivity approach to measuring innovation asks “how much more real GDP can be obtained from a given base of resources”. The larger economic question is actually “how much more well‐being can be obtained from these resources”, since consumption, not production, is the end point of economic activity. The expenditure function, which indicates the amount of expenditure needed to finance a given standard of living, is well‐suited to the larger question since this expenditure falls when costless technical change makes goods cheaper or consumption more efficient.

The approach taken in this paper is to combine the expenditure function with a factor price frontier to develop an expanded taxonomy of innovation that includes both consumer and producer effects. This taxonomy is inspired by Lancaster’s New Approach to Consumer Theory, in which the characteristics of goods, in combination with other factors, are what give utility, not the goods themselves. This framework provides a natural way to think about changes in product quality, which typically involve changes in product characteristics, as well as a way to model increases in the amount of information available for consumer choice. The expanded framework also includes investments in intangible capital.

New Technology Indicator for Technological Progress

Wendy Li
,
U.S. Bureau of Economic Analysis

Abstract

Economists rely on the total factor productivity (TFP) to measure technological progress. Empirical studies, however, show no straightforward link between TFP and technical changes, and TFP measurement is a point estimate without robustness. As countries start capitalizing R&D, the latest U.S. study shows that the resulting change of the TFP growth may cause more puzzles than reflect the true nature of technological progress.
This paper proposes a new technology indicator, R&D depreciation rate. Based on data for four high-tech industries over five countries, the new indicator shows promising results. The country ranking by the new indicator is consistent with Forbes’ global 2000 ranking. In the U.S.-Japan comparison, static TFP level and the new indicator have the same industry comparison results. Moreover, unlike TFP, the time-varying new indicator tells a consistent story with the historic U.S.-Japan industry studies. Lastly, the new indicator is easier to calculate and requires much less data for cross-country comparisons.

Intangibles and the Gap between Export and Domestic Prices: Implications for Measures of Growth and Productivity

Jon Samuels
,
U.S. Bureau of Economic Analysis
Rachel Soloveichik
,
U.S. Bureau of Economic Analysis

Abstract

We present evidence on the gap between output and export prices for goods produced in the U.S. Regardless of the underlying reason for the pricing differences, accounting consistency implies that any gap between the output price and the export price reflects the unmeasured price paid by U.S. domestic purchasers. Based on measured exports and the measured price gap, we infer the unmeasured purchase prices for goods produced domestically and used by businesses in the U.S., and trace through the implication of these inferred prices to measures of industry growth and productivity. The basic issue is similar in nature to the large literature on the role of import prices in productivity estimates. To our knowledge, this is the first study to recognize and incorporate the accounting relationship between export prices, output prices, and domestic purchase prices.
We find that industries with a higher share of intangible capital have a larger difference between foreign and domestic prices. We speculate that this is because price discrimination is usually lower for commodities, and higher for specialized items or items with few close substitutes. Intangible intensive items are typically protected by copyright or patents, and close substitutes are often prohibited by law. Therefore, firms exporting intangible intensive products may have more power to price discriminate than other exporters. Based on the observed relationship between intangibles and the export-domestic price gap for selected goods, we estimate the gap between foreign and domestic prices for industries without official export price data. We incorporate this set of estimated export prices to calculate domestic purchase prices, industry value added, and productivity.
Discussant(s)
Sonny Tambe
,
New York University
John Fernald
,
Federal Reserve Bank of San Francisco
Leonard Nakamura
,
Federal Reserve Bank of Philadelphia
Daniel E. Sichel
,
Wellesley College
JEL Classifications
  • O3 - Innovation; Research and Development; Technological Change; Intellectual Property Rights