Agency in Intangibles

I argue that intangible assets promote agency conflicts between outside investors and inside specialists. Their opacity and specialized nature provide a microfoundation for why highly intangible firms underinvest despite great valuations and profitability---a challenge for standard theories. Their development is further shown to be connected contractually to the growth and dispersion of specialists' compensation. The model provides a unified treatment of the economic forces surrounding intangible capital and its predictions are strongly supported in US and international data