Production is a sequence of steps that can be executed (1) manually, (2) augmented with AI, or (3) fully automated within contiguous AI-executed steps called \u201cchains.\u201d Firms optimally bundle steps into tasks and then jobs, trading off specialization gains against coordination costs. We characterize the optimal assignment of humans and AI to steps and the firm\u2019s resulting job structure, showing that comparative advantage logic can fail with AI chaining. The model implies non-linear productivity gains from AI quality improvements and admits a CES representation at the macro level. Empirical evidence supports the model\u2019s key predictions that (1) AI-executed steps co-occur in chains, (2) dispersion of AI-exposed steps lowers AI execution at the job level, and (3) adjacency to AI-executed steps increases the likelihood that a step is AI-executed.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.<\/p>\n","protected":false},"excerpt":{"rendered":"
Production is a sequence of steps that can be executed (1) manually, (2) augmented with AI, or (3) fully automated within contiguous AI-executed steps called \u201cchains.\u201d Firms optimally bundle steps into tasks and then jobs, trading off specialization gains against coordination costs. We characterize the optimal assignment of humans and AI to steps and the […]<\/p>\n","protected":false},"featured_media":0,"template":"","meta":{"msr-url-field":"","msr-podcast-episode":"","msrModifiedDate":"","msrModifiedDateEnabled":false,"ep_exclude_from_search":false,"_classifai_error":"","msr-author-ordering":[{"type":"user_nicename","value":"Mert Demirer","user_id":"39396"},{"type":"text","value":"John J. 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