<p>I read through the resource the OP linked to. The authors argue the case for "AI as a new factor of production" as follows:</p>

<blockquote>
  <p><em>"But what if AI has the potential to be not just another driver of TFP, but an entirely new factor of production? How can this be? The
  key is to see AI as a capital-labor hybrid. AI can replicate labor
  activities at much greater scale and speed, and to even perform some
  tasks beyond the capabilities of humans. Not to mention that in some
  areas it has the ability to learn faster than humans, if not yet as
  deeply. For example, by using virtual assistants, 1,000 legal
  documents can be reviewed in a matter of days instead of taking three
  people six months to complete. Similarly, AI can take the form of
  physical capital such as robots and intelligent machines. And unlike
  conventional capital, such as machines and buildings, it can actually
  improve over time, thanks to its self-learning capabilities."</em></p>
</blockquote>

<p>Moreover, they say that they have quantified <em>both</em> approaches: </p>

<blockquote>
  <p><em>"As Figure 6 shows, the first scenario is business-as-usual, assuming no AI effect. The second indicates the traditional view of AI as a TFP
  enhancer where it has a limited impact on growth. The third scenario
  shows what happens when AI can act as a new factor of production—there
  is a transformative effect on growth."</em></p>
</blockquote>

<p>So the critical issue here is <em>how</em> do they model "AI as a new factor of production" contrasted to "AI as a TFP enhancer", in order to get this dramatic difference in effects on growth.</p>

<p>They provide some related information in the Appendix of this white paper, for example</p>

<blockquote>
  <p><em>"We began with a modified growth model developed by Robin Hanson, professor of economics at George Mason University, Virginia, United
  States. We looked at the additional increase in growth that would
  occur as a result of AI by contrasting it with the baseline growth
  rate. In our model, we defined labor as a continuum of tasks that can
  either be performed by a human or artificial intelligence—not work
  solely done by humans. The intent was to introduce intelligent systems
  as an additional workforce capable of handling activities that require
  an advanced level of cognitive agility."</em></p>
</blockquote>

<p>but I would want to see much more in terms of the mechanics of economic modelling they applied.</p>

CC BY-SA 3.0
2017-02-19T21:44:56.013Z
2017-02-19T21:44:56.013Z
Alecos Papadopoulos
<p>My guess is that it is not a new factor of production, but simply a type of total factor productivity. This is because:</p>

<ul>
<li><p><strong>factors of production are a stock</strong>, which produce services. What is the stock of AI? The stock of labour is easy to calculate. The stock of capital is more complex, but at least all capital goods (even robots) have a market price. As such, the heterogenous capital in an economy can be converted into a unique variable, via prices. Does different AI components have prices? I don't think so.</p></li>
<li><p><strong>factors of production are rival goods</strong>. A machine cannot be used simultaneously by the same firm. Same for workers. Instead, AI are knowledge, codes, algorithms, which are non-rival.</p></li>
<li><p><strong>AI is produced by labour</strong>. As such, from a endogenous growth perspective (<em>a lá</em> Romer), resources need to be invested in order to augment the level of AI in the economy.</p></li>
<li><p><strong>factors of production get paid</strong>. How do you pay an algorithm? Even more, <strong>why</strong> would you pay an algorithm at all?</p></li>
</ul>

<p>Therefore, if I were to model AI, I would do so as part of TFP, and not as a new factor of production. In my view, the report is highlighting is that AI is a different and new component of TFP, one which could revitalise growth.</p>

CC BY-SA 3.0
2017-02-14T20:59:39.367Z
2017-02-14T20:59:39.367Z
luchonacho
<p><a href="https://www.accenture.com/ro-en/_acnmedia/PDF-33/Accenture-Why-AI-is-the-Future-of-Growth.pdf" rel="nofollow noreferrer">Accenture research</a> defines Artificial Intelligence as completely new production factor along labour and capital. Is such notion acceptable by economists?</p>

<p>As far as I understand then every asset of AI - patented algorithms and software, proprietary knowledge bases and data bases - has its owner and therefore those assets can be considered simply as some form of capital and one should not make special conclusions about AI.</p>

CC BY-SA 3.0
2017-08-23T11:59:51.720Z
Have you considered accepting an answer?
luchonacho
<production-function><technology><capital>
Is Artificial Intelligence a completely new (and underestimated) production factor?
TomR
# Is Artificial Intelligence a completely new (and underestimated) production factor?

(Asked by: username_0 on 2017-02-14)

[Accenture research](https://www.accenture.com/ro-en/_acnmedia/PDF-33/Accenture-Why-AI-is-the-Future-of-Growth.pdf) defines Artificial Intelligence as completely new production factor along labour and capital. Is such notion acceptable by economists?

As far as I understand then every asset of AI - patented algorithms and software, proprietary knowledge bases and data bases - has its owner and therefore those assets can be considered simply as some form of capital and one should not make special conclusions about AI.

**Tags:** production-function, technology, capital

> **Comments:**
> **username_1**: Have you considered accepting an answer?  

---

## 2 answers

### Answer by username_1 on 2017-02-14. Score: 5 | Accepted answer

My guess is that it is not a new factor of production, but simply a type of total factor productivity. This is because:

* **factors of production are a stock**, which produce services. What is the stock of AI? The stock of labour is easy to calculate. The stock of capital is more complex, but at least all capital goods (even robots) have a market price. As such, the heterogenous capital in an economy can be converted into a unique variable, via prices. Does different AI components have prices? I don't think so.
* **factors of production are rival goods**. A machine cannot be used simultaneously by the same firm. Same for workers. Instead, AI are knowledge, codes, algorithms, which are non-rival.
* **AI is produced by labour**. As such, from a endogenous growth perspective (*a lá* Romer), resources need to be invested in order to augment the level of AI in the economy.
* **factors of production get paid**. How do you pay an algorithm? Even more, **why** would you pay an algorithm at all?

Therefore, if I were to model AI, I would do so as part of TFP, and not as a new factor of production. In my view, the report is highlighting is that AI is a different and new component of TFP, one which could revitalise growth.


---

### Answer by username_2 on 2017-02-19. Score: 1

I read through the resource the OP linked to. The authors argue the case for "AI as a new factor of production" as follows:

> *"But what if AI has the potential to be not just another driver of TFP, but an entirely new factor of production? How can this be? The
> key is to see AI as a capital-labor hybrid. AI can replicate labor
> activities at much greater scale and speed, and to even perform some
> tasks beyond the capabilities of humans. Not to mention that in some
> areas it has the ability to learn faster than humans, if not yet as
> deeply. For example, by using virtual assistants, 1,000 legal
> documents can be reviewed in a matter of days instead of taking three
> people six months to complete. Similarly, AI can take the form of
> physical capital such as robots and intelligent machines. And unlike
> conventional capital, such as machines and buildings, it can actually
> improve over time, thanks to its self-learning capabilities."*

Moreover, they say that they have quantified *both* approaches:

> *"As Figure 6 shows, the first scenario is business-as-usual, assuming no AI effect. The second indicates the traditional view of AI as a TFP
> enhancer where it has a limited impact on growth. The third scenario
> shows what happens when AI can act as a new factor of production—there
> is a transformative effect on growth."*

So the critical issue here is *how* do they model "AI as a new factor of production" contrasted to "AI as a TFP enhancer", in order to get this dramatic difference in effects on growth.

They provide some related information in the Appendix of this white paper, for example

> *"We began with a modified growth model developed by Robin Hanson, professor of economics at George Mason University, Virginia, United
> States. We looked at the additional increase in growth that would
> occur as a result of AI by contrasting it with the baseline growth
> rate. In our model, we defined labor as a continuum of tasks that can
> either be performed by a human or artificial intelligence—not work
> solely done by humans. The intent was to introduce intelligent systems
> as an additional workforce capable of handling activities that require
> an advanced level of cognitive agility."*

but I would want to see much more in terms of the mechanics of economic modelling they applied.


---

