Chiu, Jagannathan, Lin & Tseng — Valuing Intangibles and Rents

Summary

"A Simple Approach to Valuing Intangibles and Rents" (NBER Working Paper 30829, January 2023, revised February 2025) by Wan-Chien Chiu (National Tsing Hua University), Ravi Jagannathan (Kellogg/Northwestern and NBER), Yo-Lan Lin (Yuan Ze), and Kevin Tseng (CUHK) proposes a way to measure how much of a public company's stock-market value is not explained by its tangible assets or its investment in intangible capital — and argues that this leftover is, for the most part, economic rent.[1] It is directly relevant to this wiki because it puts a large, rising, dollar-denominated number on the same market-power surplus the corporate profits increasingly reflect economic rents page tracks — while using the same intangibles-capitalization method as Crouzet & Eberly, the page's leading counter-argument.

One caution frames everything below: the paper's headline quantity is a residual, not a direct measurement of rent, and its authors are careful (and hedged) about the inference from one to the other. The wiki carries the finding on that basis.

What the paper measures

The method decomposes a firm's market value into four parts (eq. 1, p. 6):

Market value of assets = Tangible assets + Book intangible assets + Capitalized intangible assets + Valuation residual

The third term, capitalized intangible assets, is the estimated value of the firm's own investment in knowledge capital (from R&D) and organization capital (from a portion of SG&A), built up by the standard perpetual-inventory method — this is the "it's really investment, not rent" component. The fourth term, the valuation residual (VR), is what remains, and the authors state plainly that it "consists of economic rents, capacity adjustment costs, and potential mispricing" (p. 1).

Their headline aggregate result (p. 3):

"the share of valuation residuals as a percentage of the market value of firms has increased from almost nothing in 1976 to 45% in 2020, with capitalized intangible assets contributing consistently around 10%."

In dollars, the 2020 aggregate market value of the sample (~16,500 US public firms, excluding financials) is about $45 trillion, of which the residual is about $21 trillion, tangible assets about $14 trillion, book intangibles about $5.5 trillion, and capitalized intangibles about $4 trillion (p. 18). The residual was actually negative until 1984 (the authors attribute the 1970s–80s gap to stock-market undervaluation), then climbed steadily. The rise "stems entirely from firms in the top half of the distribution" (pp. 16–17): the largest 10% of firms account for roughly $20 trillion of the $21 trillion. At the firm level the residual is extremely right-skewed — a median of about $5 million but a mean of $671 million — and Apple tops the ranking with an average residual near $367 billion over 2016–2020, ahead of Amazon (~$279bn) and Microsoft (~$270bn) (p. 16, Appendix B). By industry the residual is largest in high-tech and healthcare (Online Appendix Table OA5).

Why the authors read the residual as (mostly) rent

This is the load-bearing inference, and it is explicitly an inference, not a measurement. The argument (p. 3):

"The extensive finance literature suggests that VRs are unlikely to have significant persistent mispricing components... Moreover, Crouzet and Eberly (2023) demonstrate that capacity adjustment costs are small relative to economic rents. Hence, VRs are likely to have significant ex-post economic rents components."

That is: of the residual's three possible sources — rents, capacity-adjustment costs, and mispricing — the authors argue the other two are small (adjustment costs from Crouzet & Eberly, whose own decomposition attributes ~85% of the relevant gap to rents; mispricing from the efficient-markets literature), leaving rent as the dominant remainder. Their estimation is even built on this as a stated prior — that "product markets are competitive and economic rents are difficult to obtain and maintain... and capital markets are on average informationally efficient" (p. 10) — which the empirical sections then test for consistency rather than prove from scratch. The rent concept is explicitly ex-post (realized): in their patent-race example, "ex ante, there are no economic rents, but the winning firm will earn huge economic rents ex post" (p. 2, fn. 3).

The market-power evidence

The paper's strongest contribution is a battery of correlations showing that high-residual firms behave like firms with market power. Comparing a firm at the 75th versus 25th percentile of size-and-industry-adjusted residual, the authors find it has: markups higher by 15.5% above the median (using the De Loecker–Eeckhout–Unger measure, p. 22); profitability higher by 6–12.5% (p. 4); a labor share 7.1% lower despite paying higher absolute wages (echoing Autor et al. and Barkai, p. 23); 3.4% fewer product-market threats (p. 23); and lower sensitivity of investment to Tobin's Q (p. 27). High-residual firms with strong pre-existing competitive advantages also benefited disproportionately from the China trade shock after 2000 (p. 28). Each of these is what the market-power reading predicts and the pure-mispricing reading does not — which is the sense in which the correlations support the rent interpretation.

Relation to the Georgist case

This belongs on the contested frontier of the wiki's rent gradient, well away from the clean land case, and the honest framing matters more here than the headline number. Three points:

• It is market-power / franchise rent on corporate intangibles, not land rent. The paper's "rents" are the returns to patents, brands, network effects, scale, and superstar-firm position among US public companies. The word "land" does not appear as an economic category anywhere in it. Its value to the Georgist argument is as evidence that the rent phenomenon extends far beyond land into modern corporate positions — the same move the corporate-profits, data-rents, and taxing tech rents pages already make — not as a measurement of land rent.
• It sharpens, rather than settles, the contested question. Because it uses the same intangibles-capitalization method as Crouzet & Eberly yet separates capitalized intangibles (~10%, the "return to real investment" story) from the residual (~45%, the rent story), it is a genuine attempt to draw the line between the two readings the corporate-profits page holds in tension — and it lands on the rent side, while conceding the residual is not purely rent.
• What the paper does not do — and cannot be cited for. It contains no tax-policy analysis, no rent-capture proposal, and no citizen's dividend arithmetic. Its sample is US public firms only, so it says nothing directly about private companies (which hold much corporate value) or the whole-economy rent base. Extending the $21 trillion figure to private firms, or converting it into potential tax revenue or per-capita dividends, is a further argument the paper itself does not make; such extensions are advocacy extrapolation, not findings of this study, and should be labeled as such wherever they appear.

Nuances and Limits

• Working paper, not peer-reviewed. NBER WP 30829 carries the standard notice that it has "not been peer-reviewed." Treat its estimates as a serious but unrefereed result.
• The residual is an upper bound on rent, not rent itself. By construction VR also contains capacity-adjustment costs, labor-force-change costs, and mispricing. The authors argue rent dominates, but that is an inference resting on external evidence and a stated prior — not a decomposition that isolates rent within the residual.
• Mispricing is real for a defined subset. The paper's own asset-pricing test finds significantly negative risk-adjusted returns (about −10.7%/year) concentrated in small-cap, low-profitability, high-residual portfolios — i.e., for those firms the residual reflects overpricing, not rent. The authors concede this: other firms "are on average fairly priced" (p. 33), but this subset is the exception.
• Within-industry uniformity assumption. The method assumes the same intangible depreciation rates and SG&A investment share for all firms in an industry, so genuine firm-level differences in intangible-building efficiency get pushed into the residual (p. 2, fn. 4) — a channel by which some non-rent value could be mislabeled.
• Ends in 2020. Despite the 2025 revision, the data stop in 2020; there is no post-pandemic or recent-AI-era figure.

See Also

• Corporate profits increasingly reflect economic rents — the claim page this supports
• Crouzet & Eberly (2019) — same method, read as the efficiency counter-case
• De Loecker, Eeckhout & Unger (2020) — the markup measure this paper uses
• Barkai (2020) — the falling-labor-share, rising-profit-share decomposition
• Taxing Tech Rents — where the capture question (which this paper does not address) is worked out
• Economic Rent · Geoism — the rent-domain program and its gradient

Sources

1. Wan-Chien Chiu, Ravi Jagannathan, Yo-Lan Lin & Kevin Tseng, "A Simple Approach to Valuing Intangibles and Rents," NBER Working Paper No. 30829 (January 2023, revised February 2025; JEL G0, G00, G12; an earlier version circulated as "Franchise Value, Intangibles, and Tobin's Q"). NBER — read in full this session (PDF, incl. Online Appendix) — used for the four-part market-value decomposition and the definition of the valuation residual (eq. 1, pp. 1, 6); the aggregate residual share (45% of market value by 2020) and dollar figures ($45tn market value, $21tn residual, ~$4tn capitalized intangibles, 2020; p. 18); the large-firm concentration of the residual (pp. 16–17) and firm/industry rankings (p. 16, Appendix B, Online Appendix OA5); the rents-dominate inference and its stated prior (pp. 3, 10; fn. 3, 13); the market-power correlations (markups, profitability, labor share, product-market threats, investment-Q, the China shock; pp. 4, 20–29); and the self-stated caveats on peer-review status, the mispricing subset (p. 33), and the within-industry assumption (p. 2). All quotations verbatim, ≤50 words, with page cites (C/D-claims — an unrefereed working paper's measurement and its authors' interpretive rent inference).