Working Papers

The Rise of Long Run Losses, Intangible Deepening, and Demand Shifting Investment

Joint with Dalton Rongxuan Zhang
Last updated: August 2026

Abstract In the universe of US public firms between 1980 and 2019, we find (1) a rise in intangible investment in both R&D and sales and marketing relative to traditional physical capital expenditures, (2) a rise in the revenue elasticities of intangible capital stocks relative to physical capital and labor, and (3) a rise in the average number of consecutive years a firm reports negative profits, driven by firms outspending revenue for more consecutive years early in their lifecycle. We rationalize these trends with a model of heterogenous firms investing in physical capital, intangible capital, and customer capital. In our model, we treat intangible capital as non-rival across customers, e.g. the physical capital and labor embodied in an iPhone isn't shared across Apple's customers, but the intangible capital of IOS is. This assumption links the returns of both intangible capital and customer capital to the output elasticity of intangible capital. With a specified demand system, we can recover the structural parameters that determine revenue elasticities in rolling windows, fully estimating the production function while accounting for customer capital's role in determining revenue. We find that the output elasticity of intangible capital has risen since 1980, which in our model can account for each of the trends we document: First, firms invest more in intangible capital *and* customer capital capital. Second, more firms lose more money early in their life because they want to grow larger customer bases and don’t internalize that customer investment is business stealing. We also get some spreading of the sales distribution and an increase in the Gini coefficient of sales through this novel pathway of production technology shifts changing customer accumulation decisions.

Slides, Paper (out of date, new draft coming soon!)
Presentations: Federal Reserve Board of Governors (2026)

Sector-Specific Substitution and the Effect of Sectoral Shocks

Last updated: June 2026

Abstract How a shock to an individual sector propagates to the prices of other sectors and aggregates to GDP depends on how easily sectoral goods can be substituted in production, which is determined by the intermediate input substitution elasticity. Past estimates of this parameter in the US have been restrictive: they have assumed a common elasticity across industries, and have ignored the use of imports in production. This paper uses a novel empirical strategy to produce new estimates without these restrictions, by exploiting variation in import ratios and in input expenditure shares within industries rather than across industries. I find that sectors differ meaningfully in their ability to substitute inputs in production, and that the uniform estimate of the intermediate input substitution elasticity is biased downwards relative to the median sector-specific estimate. Relative to imposing the uniform elasticity, sector-specific substitution causes domestic prices to rise more in response to oil import shocks and less in response to semiconductor import shocks. It also implies the average GDP response to a sectoral business cycle is 0.423% higher, making sectoral business cycles 25.9% less costly.

Paper, arXiv, Data and code
Presentations: Federal Reserve Board of Governors (2026), NASMES (2026), Midwest Macro (2026)