In this chapter, we ask what economic modeling can tell us about the likelihood that firms will invent an AGI: how much and for how long must they sustain investment in R&D to obtain such an invention? We develop a novel Real Options Model, one that uses a stochastic compound Poisson process, to explicitly take into account that a radical innovation such as an AGI is subject to much more uncertainty than typical business investments – which also helps throw light of the breakthroughs and backlashes that have characterized periodic AI winters. An important conclusion from the modelling in this chapter is that it will most likely be largely government-funded agencies and/or a few large corporations that will invent an AGI, if it is ever invented.

This chapter provides a macroeconomic perspective of artificial intelligence’s impacts on labor markets and economic growth – although the analysis remains grounded in microeconomic functions. In this chapter, we provide an economic growth model wherein AI as a possible substitute for human labor is modeled, taking into account the nature of AI as an automation technology. This goes to the heart of the current focus of economists on AI, namely its implications for labor markets, and specifically unemployment and skills requirements. The crucial points that we make here are that economists need to go further than indirectly modeling AI through assumptions on substitution elasticities and need to take the specific nature (narrow focus) of AI into explicit account.

In this chapter we ask how values and ethics in AI development can be incentivized by governments. We start out from the difficulty acknowledged in the rapidly growing field of AI ethics that the many proposals for ethical AI - or Human Centered AI (HCAI) – lack strong incentives for developers and users to adhere to them. The crucial insight from this chapter is from the use of a we simple theoretical model which shows how public procurement of innovation can incentivize the development of HCAI.

In this chapter, we depart from the observation that a strong motivation for large firms to invest substantial amounts into R&D for an AGI is due to the winner-takes-all effects it may bestow on them. This feature, while important to incentivize AI investment, has the downside that it implies that AI arms races may take place. And the danger of an AI arms race is that it may result in an inferior AGI from a human safety perspective. In this chapter, we model such an AI arms race as an innovation contest and show how a government can steer such an arms race so as to obtain a better outcome in terms of the quality of the AGI. A crucial insight from our modeling is that the intention (or goals) of teams competing in an AGI race, as well as the possibility of an intermediate outcome (“second prize”), may be important.

This chapter deals with how microeconomics can provide insights into the key challenge that artificial intelligence (AI) scientists face. This challenge is to create intelligent, autonomous agents that can make rational decisions. In this challenge, they confront two questions: what decision theory to follow and how to implement it in AI systems. This chapter provides answers to these questions and makes three contributions. The first is to discuss how economic decision theory – expected utility theory (EUT) – can help AI systems with utility functions to deal with the problem of instrumental goals, the possibility of utility function instability, and coordination challenges in multiactor and human–agent collective settings. The second contribution is to show that using EUT restricts AI systems to narrow applications, which are “small worlds” where concerns about AI alignment may lose urgency and be better labeled as safety issues. The chapter’s third contribution points to several areas where economists may learn from AI scientists as they implement EUT.

This chapter deals with how public policy can steer AI, by taking how it can impact the use of big data, one of the key inputs required for AI. Essentially, public policy can steer AI through putting conditions and limitations on data. But data itself can help improve public policy – also in the area of economic policymaking. Hence, this chapter touches on the future potential of economic policy improvements through AI. More specifically, we discuss under what conditions the availability of large data sets can support and enhance public policy effectiveness – including in the use of AI – along two main directions. We analyze how big data can help existing policy measures to improve their effectiveness and, second, we discuss how the availability of big data can suggest new, not yet implemented, policy solutions that can improve upon existing ones. The key message of this chapter is that the desirability of big data and AI to enhance policymaking depends on the goal of public authorities, and on aspects such as the cost of data collection and storage and the complexity and importance of the policy issue.

In this chapter, we describe the development of AI since World War II, noting various AI “winters” and tracing the current boom in AI back to around 2006/2007. We provide various metrics describing the nature of this AI boom. We then provide a summary and discussion of the salient research relevant to the economics of AI and outline some recent theoretical advances.

This chapter provides a motivation for this book, outlining the interests of economists in artificial intelligence, describing who this book is aimed at, and laying out the structure of the book.

In this chapter, we take the production function enriched with AI abilities from Chapter 4, and apply it to study the implications for progress in AI on growth and inequality. The crucial finding we discuss in this chapter is that understanding the nature of AI as narrow ML and its effect on key macroeconomic outcomes depends on having appropriate assumptions in growth models. In particular, we discuss the appropriateness of assuming, as most standard endogenous growth models today do, that economies are supply driven. If they are not supply driven, then demand constraints, which can arise from the diffusion of AI, may restrict growth. Through this, we show why expectations that AI will may lead to “explosive” economic growth is unlikely to materialize. We show that by considering the nature of AI as specific (and not general) AI and making appropriate assumptions that reflect the digital AI economy better, economic outcomes may be characterized by slow growth, rising inequality, and rather full employment – conditions that rather well describe economies in the West.

In this chapter, we consider the future of AI. We base our speculation on informed discussions of the implications of current socioeconomic and technological trends, and on our understanding of past digital revolutions. This allows us to provide insights on where the economy is heading, and what this may imply for economics as a science. Future avenues for research are identified.