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Artificial Intelligence in the Knowledge Economy

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  • Enrique Ide
  • Eduard Talamas

Abstract

How does Artificial Intelligence (AI) affect the organization of work? We incorporate AI into an economy where humans endogenously sort into hierarchical firms: Less knowledgeable agents become "workers" (i.e., execute routine tasks), while more knowledgeable agents becomes "managers" (i.e., specialize in problem solving). We model AI as an algorithm that uses computing power to mimic the behavior of humans with a given knowledge. We show that AI not only leads to occupational displacement but also changes the endogenous matching between all workers and managers. This leads to new insights regarding AI's effects on productivity, firm size, and degree of decentralization.

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  • Enrique Ide & Eduard Talamas, 2023. "Artificial Intelligence in the Knowledge Economy," Papers 2312.05481, arXiv.org, revised Apr 2024.
    • Handle: RePEc:arx:papers:2312.05481
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    References listed on IDEAS

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    1. Ajay Agrawal & Joshua Gans & Avi Goldfarb, 2019. "The Economics of Artificial Intelligence: An Agenda," NBER Books, National Bureau of Economic Research, Inc, number agra-1, July.
    2. Daron Acemoglu & Jonas Loebbing, 2022. "Automation and Polarization," NBER Working Papers 30528, National Bureau of Economic Research, Inc.
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