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AI and the Boundary of the Firm: Evidence from Radiology

Author

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  • Marco Francesconi
  • Xiaoyu Xia

Abstract

Artificial intelligence (AI) may transform labor markets not only by changing workers' tasks but also by reorganizing production. We study radiology, where AI has spread rapidly without increasing interpretations per radiologist. In our model, AI facilitates outsourcing by letting hospitals verify the quality of remotely supplied interpretations. Using US Medicare data for 2013-2024, we document declining local radiology activity in smaller markets despite stable imaging demand. Interpretations shift toward larger markets, and radiologists at documented AI-adopting platforms end up serving more markets. AI can thus reshape firm boundaries and the geographic organization of professional work without replacing workers' tasks.

Suggested Citation

  • Marco Francesconi & Xiaoyu Xia, 2026. "AI and the Boundary of the Firm: Evidence from Radiology," CESifo Working Paper Series 13086, CESifo.
    • Handle: RePEc:ces:ceswps:_13086
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    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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