The Economics of Artificial Intelligence: Scaling, Verification, Assignment, Capital, Growth, and Value

Abstract

This paper develops the economics of artificial intelligence as a single connected structure, from the physics of the production function to the aggregate growth constraint and the valuation of the firms building and adopting it. Part I derives the cost of capability from scaling laws, shows why deployed models are systematically overtrained, and estimates the task-success slope directly from 23,235 public evaluation runs: $\hat\beta=0.83$ with no detectable release-date trend. Part II treats market structure: minimum efficient scale, the two-tier equilibrium in which open weights contest the trailing edge but never the frontier, and inference as a capacity-constrained short-run market that rations rather than prices. Part III is the core. We replace the standard automation assignment rule with one that prices reliability, obtaining an automation calendar $t_{\mathrm{aut}}=t_{1/2}+(\tau/\beta)\log_2\gamma$ in which verification cost, not task difficulty, sets the date; derive optimal checkpoint spacing $k^\star\approx\sqrt{v_{\mathrm{ver}}/\lambda}$; and prove the exact best-of-$k$ result. Against a sound verifier, sampling divides the reliability lag by $k$ in the small-$k$ regime and does better outside it; against an unsound verifier, it leaves an error floor that no amount of sampling removes. Part IV aggregates: diffusion inherits its time dispersion from verification costs, and revenue growth is governed by the density of tasks at the current threshold. Part V proves a Baumol bound --- with elasticity of substitution below one, aggregate growth converges to that of the least automatable essential input --- and states three jointly necessary conditions for explosive growth. Part VI treats measurement, policy, and financial markets. Part VII states the investment bridge: technological importance, industry profit, and security return are distinct objects, and a coherent valuation must respect the automation calendar, rent migration, capital consumption, and expectations already in price. The full valuation architecture is reserved for a separate companion paper. Part VIII states eighteen open problems.