By François Gourio and Leena Rudanko
Intangible capital is an important factor of production in modern economies that is generally neglected in business cycle analyses. We demonstrate that intangible capital can have a substantial impact on business cycle dynamics, especially if the intangible is complementary with production capacity. We focus on customer capital: the capital embodied in the relationships a firm has with its customers. Introducing customer capital into a standard real business cycle model generates a volatile and countercyclical labor wedge, due to a mismeasured marginal product of labor. We also provide new evidence on cyclical variation in selling effort to discipline the exercise.
There are now quite a few papers that look beyond the traditional production factors and their impact on the business cycle. This is probably the most concrete paper that looks at intangible capital, which is obviously difficult to measure, but which manifests itself in ways that can be related to data such as indicators of selling effort. It looks like theory is still ahead of measurement, though.