Luohan Academy

Event Recap

Digital Capital and Superstar Firms

Speakers : Erik Brynjolfsson


Erik Brynjolfsson (Stanford)

Erik Brynjolfsson is the Jerry Yang and Akiko Yamazaki Professor and Senior Fellow at the Stanford Institute for Human-Centered AI (HAI), and Director of the Stanford Digital Economy Lab. He also is the Ralph Landau Senior Fellow at the Stanford Institute for Economic Policy Research (SIEPR), Professor by Courtesy at the Stanford Graduate School of Business and Stanford Department of Economics, and a Research Associate at the National Bureau of Economic Research (NBER). His research examines the effects of information technologies on business strategy, productivity and performance, digital commerce, and intangible assets. 

Full recap: 

On 15th June 2021, Professor Erik Brynjolfsson joined us in a Luohan Academy Webinar to discuss the rising importance of intangibles and its implication on productivity. Professor Brynjolfsson shared his recent co-authored paper “Digital Capital and Superstar Firms”, which computes prices and quantities of digital capital and studies its distribution across firms. Then he related the paper to the productivity J-curve and shared an optimistic prediction that the productivity growth in developed countries would start to grow in the coming years. 

The digital capital paper focuses on the intangible assets that are associated with information technology and calls them digital capital. The paper answers three open questions: “Are high values for digital capital due to price or quantity?”, “Which types of firms are creating the most digital capital?”, and “What are the implications for productivity and growth?”. 

To answer the first one, the paper follows Hall’s formulation. Prices and quantities of intangible capital can be recovered by combining conditions for optimal investment with adjustment costs and the definition of intangible value. Applying this approach to a time series data with firms’ market values and assets collected from the Capital IQ database, the paper finds that “digital capital quantities grew rapidly and accounted for at least 25% of firms’ assets by the end of 2016 and digital capital prices varied significantly over time.” The market value trend of digital capital is driven by an upward trend of quantity and the sharp rise of market value around 2000 mostly reflects the fluctuation in prices. 

The paper also documents that digital capital has disproportionately accumulated in a small set of “superstar” firms. For example, the top 10% of firms’ digital capital is approximately 2.5 times of the next 10% firms’ digital capital. And digital capital accumulation predicts future firm-level productivity. Professor Brynjolfsson further related these findings to the Productivity J-curve. The J-curve is saying the total productivity mismeasurement follows a shape looks like the letter J. The intuition is that when we make a costly intangible investment, the measured productivity falls first because we are building intangible capital without instant output. And later when we harvest the investment, the measured productivity increases. Following the intuition, we might be at the bottom of the J-curve and expect to see an increasing productivity growth in the coming years. 

Throughout Professor Brynjolfsson’s presentation, other participants including Neil Thompson from MIT, Hanming Fang from University of Pennsylvania, Shang-jin Wei from Columbia Business School, Ginger Jin from University of Maryland, College Park, and Luohan Academy economist Qing Han discussed different parts of this paper. For example, Professor Thompson asked that why should we think of the stock market price as a reflection of market value for digital capital instead of a result of the supply and demand of stocks. Professor Wei raised questions about the impact of changing market structure and growing globalization on the measurement of digital capital. The Q&A session was concluded by comments from Long Chen. 

Further readings

Tambe, P., Hitt, L., Rock, D., & Brynjolfsson, E. (2020). Digital Capital and Superstar Firms (No. w28285). National Bureau of Economic Research.

Hall, R. E. (2001). The stock market and capital accumulation. American EconomicReview, 91(5):1185–1202.Brynjolfsson, E., Rock, D., & Syverson, C. (2021). The productivity J-curve: How intangibles complement general purpose technologies. American Economic Journal: Macroeconomics, 13(1), 333-72.


If you would like to give a presentation in a future webinar, please contact our Economist Dr. Xijie Gao ( ​

For media inquires contact:


to leave a comment