Derivative Ideas and the Value of Intangible Assets∗

We build a general equilibrium model in which growth is driven by two invention types: fundamental ideas that cause creative destruction, and derivative ideas that enhance the value of existing inventions. The model provides a new mapping from microeconomic, patent data to aggregate TFP growth and the aggregate value of privately owned knowledge. We show how to measure the frequency of derivative ideas and the rate of creative destruction. We estimate that derivative ideas account for 70-80% of all patents and that their presence more than doubles the value of intangible capital relative to what microeconomic evidence might otherwise suggest.