Essays on Intangible Investment

Abstract

This dissertation attempts to deepen the literature’s understanding of intangibleinvestments. Specifically, it focuses on the impact of regulatory and fiscal policy on motivations for intangible investments. This dissertation consists of three chapters.The first chapter considers the impact of antitrust policy on research and development incentives. Policymakers have increasingly concluded that optimal antitrust policy requires looking beyond traditional static analyses and considering the dynamic effects of policy. Such analysis is challenging as limited studies exist concerning dynamic competition policy. This paper attempts to bridge this knowledge gap by developing a novel structural growth model that includes mergers and acquisitions (M&A) activity. This allows for a deeper understanding of the impact of M&A on economic growth as well as serving as a test bed for proposed antitrust policies. Themodel, estimated on U.S. data, shows that M&A is a double-edged sword. Blocking all M&A transactions causes a significant decrease in the growth rate. Unrestricted M&A causes a significant increase in market concentration. Both cases are welfare decreasing. The chapter then considers the balance of static vs. dynamic policy as well as a policy regime’s impact on the macroeconomy. Antitrust policy analysis requires an understanding the motives behind a proposedtransaction. The second chapter develops a novel methodology for classifying relationships between parties in a merger and acquisition transaction. Understanding the motives of an M&A transaction is essential in researching the economic impact of M&A. Given the high number of transactions per year, manually classifying every transaction is unfeasible. This paper proposes a novel methodology using a large-language model to determine if a transaction has possible horizontal or vertical linkages. With sufficient information, this model is highly accurate. Focusing on transactions involving U.S. firms, 38% of transactions were only horizontally linked, 38% were only vertically linked, 12% were both horizontally and vertically linked, and 10% had no linkages. This pattern is robust across time and presidential administrations.The resulting data can be used by any researcher studying M&A transactions. Continuing with the theme of understanding motives behind intangible investments, the third chapter elucidates the nature of entrepreneurship by comparing life-cycle income profiles and outcomes of individuals who share similar characteristics but differ in their choice of self- or paid-employment. Results are based on U.S. administrative data from the Internal Revenue Service and Social Security Administration over the period 2000–2015 for subgroups of the population differing by gender, marital status, education, occupation, industry, cohort, and employment status. Contrary to top-coded survey evidence based on relatively small samples and short panels, we find that entrepreneurs with at least twelve years in self-employment during our sample have significantly higher average income and steeper, more persistent, income growth profiles than their paid-employed peers with similar characteristics. Contrary to survey evidence, we find that new entrants into self-employment have higher labor incomes and lower asset incomes prior to entry relative to similar peers that do not enter. A theory of entrepreneurial choice is developed and compared to the subsample of young entrepreneurs in our data. We find that including firm-specific investment and selection under incomplete information is necessary if the theory is to match the observed income growth profiles and switching behavior for these young entrepreneurs.