Looking at the production formula that operates with labour L, capital K (tangible
and intangible in CHS) and total factor productivity A, the CHS model by necessity
underestimates the effect of total factor productivity (or multifactor productivity MFP)
A, since capital K increases and addresses this change in productivity to intangible
capital (i.e. the effect of increased capital). In addition, the capitalization of intangibles
expenses always increases the effects of (intangible) capital in the early phase of a
technological revolution, because the introduction of new technology always implies a
high level of both investments and expenses. This is due to the high prices and
operating costs of new technologies as compared to the use of old or established
technologies.