The nature of the Artificially Intelligent Firm - An economic investigation into changes that AI brings to the firm

Publication Type:

Journal Article

Authors:

Wagner, Dirk Nicolas

Source:

Telecommunications Policy, Elsevier Ltd, Volume 44, Number 6, p.101954 (2020)

URL:

https://doi.org/10.1016/j.telpol.2020.101954

Keywords:

artificial intelligence, Asymmetric information, machine learning, Principal-agent problem, Theory of the firm

Abstract:

With the arrival of Artificial Intelligence (AI), the nature of the firm is changing and economic theory can provide guidance to businesses as well as to politics when formulating adequate strategies for this unknown terrain. By interpreting AI as a new type of agent within the firm, the theory of the firm can serve as a lingua franca to connect computer sciences and social sciences when dealing with the interdisciplinary phenomenon of AI. To achieve this, this paper adopts the perspective of the economic theory of the firm to systematically explore the changes that AI brings to the institution of the firm. In total, five interrelated propositions are discussed that are rooted in the traditional theory but trace the nature of the Artificially Intelligent Firm: AI intensifies the effects of economic rationality on the firm (1). AI introduces a new type of information asymmetry (2). AI can perforate the boundaries of the firm (3). AI can create triangular agency relationships (4) and AI has the potential to remove traditional limits of integration (5).