The actual AI problem in academic economics

There is a steady flow of takes on the impact of AI on academic economics research, whether its the example of someone writing an ostensibly legitimate, if somewhat trite, research paper with only a few hours effort to the implication that there is already no need to continue writing papers as the AIs are already better at at. Oh, what shall all the candlemakers do now that the sun has risen?

I think the idea that AI has already rendered the research paper an obselete endeavor is very wrong, almost to the point of negligence. It both vastly underestimates the quality of the median contribution provided in the 80 to 100 or so best journals and vastly overestimates the reliablity of current AI attempts at research on the margin. Putting such concerns aside for the moment, it’s still worth pondering how we can extrapolate from current AI as a tool for status quo research to forecast if it might reshape labor as an input 5 or 10 years from now. That’s far enough away that it borders on futurism and, more importantly, the kind of forecasting that I shy away from. Feel free to tell me in the comments where we are headed.

At this moment, however, we already are in the middle of a far more subtle disruption in academic research that I haven’t seen anyone write about yet. The quiet, but pronounced, uptake of AI tools in the writing of referee reports for academic journals. If you’ve submitted papers for review in the last 18 months, dollars to donuts you’ve received a referee report that has been lengthy, well-organized, with an unusual number of bullet points and headers discussing your paper, summarizing it’s contributions, and offering suggestions that on their face seem reasonable but upon a moment’s reflection are quickly realized to be entirely vapid by someone familiar with the structure of the data and relevant literature.

There is something uniquely frustrating about working on a research project for 3 to 5 years only to have judgement passed down on the basis, at least in part, of a review written by ChatGPT that is not just wrong but, well, kind of stupid. I’ve already personally had to deal with having a paper refereed via ChatGPT, rejected, and then, thanks to it being internalized by ChatGPT into their text base, it being reconfigured into a citaton hallucination cited by other papers that, to maxmize comedy, replaced 3 (including me) of the 4 authors with other (nicer? better looking?) economists. What’s most frustrating, however, is that this is hitting economics journals that do not seem to have any plan in place to deal with it. Not to suggest this is an easy problem to solve (not remotely), but it certainly should not be coming as a surprise to anyone. Let’s look at the facts:

  1. Academic economists are almost universally overcommitted.
  2. Journal referees are, for the most part, unpaid for their time.
  3. As the number of quality articles produced and submitted to journals has increased, so has the strain on the entire editorial process, including review writing.
  4. The only thing holding it together at all has been reputational incentives (i.e. nobody wants a bad reputation with the editors that are going to consider your future work) and a disciplinary sense of “civic duty”. Reputation is, of course, the load bearing mechanism here.
  5. A technology was introduced that, at the very least, pantomimes the review process well enough that it can produce a low quality fascimile of a review that, with a few sentences tossed in at the beginning and a short separate letter written directly the editor by the reviewer, can allow a task that used to take a 0.5 to 1.5 work days can now be crossed off your to-do list in less than an hour.

Is it really that hard to see what’s coming? Of course academic economists are going to be tempted to ask ChatGPT to write a review for them. There are almost no direct rewards for writing good reviews, while the costs are significant. Evaluating a genuinely new and distinct piece of research that has never been done before is hard work and takes significant time.

Now, how this is playing out across the body of journals is an open question. Here’s my best educated guess:

At the top journals, reputational concerns are the strongest, but so is the opportunity cost of everyone’s time and the competition for limited article space. Referees might not have the courage to outsource the actual decision to ChatGPT, but they’ll be awfully tempted to offload as much of the grunt work as they can. If I were an editor at a top 10-15 journal, I would expect a growing number of reports from referees who read the paper quickly (<15 minutes), then made a decision to recommend acceptance or rejection based on 1) if they knew any of the authors, 2) whether the content is a complement or a substitute for their own research, 3) whether they had seen the paper presented in person and was well-received, 4) the general bundle of status associated with the authors and the subject, and 5) whether they liked the paper (you can, in fact, have a strong opinion on paper you’ve looked at for 15 minutes. We’re all guitly of it). Having arrived at their positive or negative assessment, they then outsource the actual first draft of the the review to ChatGPT, with the instruction to write a positive or negative review. Now, given the strong reputational considerations that any credible reviewer at a top journal should have, I expect there to then be significant rewriting of the review, including that addition of the reviewer’s preferried economist gripes about identification, whether the results generalize, etc, giving an otherwise generic report some more bespoke vibes. This isn’t the real recommendation anyway, that’s the letter to the editor that goes unseen by the research authors. I don’t think most referees will have the brass to outsource that.

That’s probably not great, especially for young authors trying to break into a field. But honestly, none of those problems are new. If anything it takes a very old problem (i.e. overcommitted economist at top school asks his or her student to write a referee report rejecting an article for them) and just tweaks it slightly (i.e. overcommitted economist at top school asks ChatGPT to write a referee report rejecting an article for them, freeing up a PhD student to get back to work cleaning and analyzing their data for them). Not optimal, but hey, what is?

The real problem, I am sad to say, is the next tier down. The field journals. The second-tier general journals. The oddball and heterodox journals. The journals that used to struggle to get enough good submissions and now struggle to find anyone to referee for them. What used to be a trickle is now a deluge of higher quality research. That deluge, however, comes from authors who also constitute a referee pool that is far busier than they were before and without the same resources that come with appointment as top institutions.

I promise you, from experience, keeping a significant research agenda going during my salad days when I was teaching a 3-3 load was not easy. What happens when the 71st ranked journal that you might submit an article to one day sends a seemingly acceptable, if mediocre and slightly banal article to review? Are you really going to give it a precious work day? Or are you going to give it a once over, ask chatGPT to review it, and then give a recommendation based on a 5 minute skim? I want believe that I would never associated my professional reputation with a half-assed review, but that’s easier to say on this side of the R1 tenure fence.

Now’s the part where I smugly tell you the obvious solution and call it a night. As is often the case, however, I don’t have one. Not one that anyone is going to like, at least. Because, the only solution I have is precisely the suggestion that got Jerry Maguire fired. We could simply publish and write fewer papers. If we write fewer papers, we can review fewer papers. If we review fewer papers we can pay people to review them. If we can pay people to review them, we can hold them to higher quality standards. Editors can review the reviews. Every now and then someone suggests we get rid of anonymous reviewers, but I worry that anonymity is load bearing when it comes to the quality standards that are in many ways the hallmark of modern economics. I don’t think we can give up on quality. Quality is our comparative advantage. So maybe its time we let go of quantity. If your dean says you’ve written some good and important article, but there aren’t enough lines on your vitae, then what they’re really saying is that they don’t want research faculty, they want AI middlemen.

Don’t be an AI middleman.

Oil Price Lesson Plan for Economic Principles

Alex Tabarrok noted in Oil versus Ice Cream that he and Tyler, as textbook authors, “chose the oil market as our central example. Oil is always in the news…”

when a student sees that the price of crude has surged past $100 a barrel because Iran closed the Strait of Hormuz—choking off 20% of the world’s oil supply—they have the framework to understand what is happening. Supply shock, inelastic demand, expectations and speculation, the macroeconomic transmission to GDP—it’s all right there in the headlines.

In a classroom, a good way to begin is to ask the students to tell you what they have noticed recently about oil or gas prices. Having the students obtain the oil price data themselves could be fun, if you are in an environment with screens/computers.

A data source for undergrads is the FRED chart for WTI crude oil prices. It is clean and easy to explain in class. An instructor with slides could pull this up in real time. https://fred.stlouisfed.org/series/DCOILWTICO

Ask students: “Is this price change primarily explained by

  1. Increase in demand
  2. Decrease in demand
  3. Increase in supply
  4. Decrease in supply

Correct answer: d. Decrease in supply

If you cover elasticity, this is especially helpful as an example. “Why would the price jump more when demand is inelastic?”

It’s not too late to work this into a lesson plan for the Spring 2026 semester, economic teachers. I might use it to illustrate supply shocks next week.

This event is a classic example of a negative supply shock: a disruption in the Strait of Hormuz would reduce the amount of oil reaching world markets, pushing energy prices sharply upward. Because oil is an important input for transportation, manufacturing, and heating, higher oil prices raise costs across much of the economy. Firms may cut production, households may spend more on gasoline and utilities and less on other goods, and overall economic activity can slow. That is why economists worry that large oil supply shocks can contribute to recessions. They do not just make one product more expensive; they can ripple outward, reducing real income, lowering consumer confidence, and weakening GDP growth while inflation rises.

Related posts. The whole crew showed up this month:

James from March 12: Is a US Oil Export Ban Coming?

Jeremy from March 18: Gasoline Prices Have Increased at Record Rates, but Remain At About Average Levels of Affordability

Tyler from March 22: How much more will oil prices have to go up?

MattY from March 24: Why hasn’t oil gotten even more expensive?

Austin Vernon: https://www.austinvernon.site/blog/thestrait.html

Cournot & Stackelberg Math

This post solves for the equilibrium quantity of production with quadratic total cost under Cournot and Stackelberg competition.

Say that there are two firms. They produce the exact same quality and type of goods and sell them at the same price. Let’s also assume that the market clears at one price. Finally, let’s assume increasing marginal costs.

Let’s say that they face the following demand curve:

The firms have a total cost of:

The marginal cost is the derivative with respect to the choice variable for each firm, or their respective quantities produced:

The total revenue is just the price times the quantity sold.

This is all standard fare for economic modeling. You’re free to make different assumptions. You can even adopt different slopes in the demand curve to reflect goods with different characteristics.

Cournot Competition

If you imagine a lengthy production process, or otherwise that they physically attend the same market, then it’s reasonable to assume that they don’t know one another’s choice of quantity produced.

We know how firms maximize profit: They produce the quantity at which the marginal revenue equals the marginal cost. But, what is marginal revenue? The derivative of total revenue with respect to the choice variable:

Now we can set the marginal revenue equal to marginal cost and solve for the optimal level of output:

Notice that the optimal level of output depends on the production decision of the other firm. These are called response functions. If we solve for the quantities at which they intersect, then we are solving for where both firms are producing the best response to one another. This is known as a Pure Strategy Nash Equilibrium (PSNE).

Luckily, in many applications, one or more of the above terms are zeros, which makes things much simpler.

The general process for solving for the Cournot equilibrium is:

  1. Set MR=MC to find the response functions.
  2. Find where the response functions intersect.

Stackelberg Competition

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Experimental Banking Reveals the Value of Leisure

In 2014 India required banks to offer no-cost accounts. This led hundreds of millions of people to open bank accounts for the first time, and more than doubled the number of Indian women who had a bank account:

This increased households’ collective ability to save and borrow, but didn’t shift decision-making power towards women despite the larger change for them. That is the finding of a paper by Tarana Chauhan, a Brown University postdoc who is currently on the job market. The paper is a well-executed example of a difference-in-difference analysis of observational data- that is, carefully examining data that other people generated to examine events that help establish causality. But the validity of difference-in-difference strategies in separating correlation from causation can always be questioned, and always is in economics seminars.

So Dr. Chauhan, this time with coauthors Berber KramerPatrick Ward and Subhransu Pattnaik, followed up by directly running an experiment. They got a company to offer subsidized loans to hundreds of randomly selected Indian farmers, then surveyed the farmers to see if they behaved differently than a control group that didn’t get loans. The loans carried a 14% interest rate, which seems high to Americans but was apparently 10pp lower than the other options available in India. They wanted to know whether farmers would use the loans to improve farm productivity, and whether this would have any differential effects on women.

The first stage of the experiment worked: households took the loans and got more engaged with the financial system.

Some used the money for smartphones:

But for the most part they seem not to have spent the money on farming- they didn’t buy significantly more land, seeds, fertilizer, or farm equipment. They did spend more on “non-farm business equipment” and “large consumer durables”. Despite not producing more food themselves, they reported higher food security. Income stayed flat, but women were able to shift some time away from work and toward leisure:

I find these results surprising given how poor the households receiving the loans are. They earn the equivalent of about $1,000/yr, putting them around the global “extreme poverty” line. At that income level I’d think they would value additional income highly relative to leisure, and yet when they get the loan, work time goes down and leisure time increases. Could it really be the case that they’ve already hit their income target, and are on the backward bending part of the labor supply curve? Some other possibilities are that they don’t expect that investing in farming would increase yields enough to be worthwhile, or that they worry any increased income would be taken away through explicit or implicit taxes. But the households generally seem better off as a result of the loan.

The other surprise- enough of the loans were paid back that the lenders made a profit despite the research pushing the interest rate below-market.

Average Wealth for Younger Generations Continues To Exceed Past Generations

Today I am posting an update to the generational wealth chart that I have posted many times in the past. This update brings the data through the 3rd quarter of 2025 for the youngest cohort, which includes both Millennials and a growing part of Gen Z in the data from the Federal Reserve. I am somehow hesitant to post this chart, as it is starting to be data that is less useful as the younger generations age, for two reasons.

The first problem with the data is that the Fed is lumping everyone from ages 18-43 together as one generation. Given that the youngest Millennials were 29 in 2025, we are now including a significant part of Gen Z, which is OK in itself, but it becomes harder to compare with generations that encompass only 16 or 17 years of birth cohorts. Secondly, the data from the Fed’s Distributional Financial Accounts is only benchmarked every three years with the Fed’s more detailed Survey of Consumer Finances. Currently only the 2022 version of the survey is available, which is now probably a bit out of date. Based on past updates, it is entirely possible that it is underestimating wealth for the youngest cohort. But I think we will have much more certainty about this data once the 2025 SCF is available and used as a benchmark for the DFA data.

With all of those caveats aside, here is the updated chart:

As I am currently working on a book manuscript using the Survey of Consumer Finances, I will be very excited to finally have the 2025 data available. Until then, this is probably the best intergenerational comparison we can do, and it continues to look very positive for the youngest cohorts. With an average of almost $146,000 of wealth for the combined Millennial/Gen Z cohort, they are well ahead of where Gen X was even in their late 30s, and ahead of Boomers at around age 37 as well. All of this bodes well for young people, despite frequent expressions of pessimism, but we should hold off judgement until the 2025 data is fully updated.

How to Install Drywall

Nearly every interior wall and ceiling in every home in America is covered with sheetrock = drywall = gypsum board. Sheetrock (a brand name for drywall) consists of an interior layer of rigid gypsum (a mineral composed of calcium sulfate dihydrate) plus some additives, with outside layers of strong paper or fiberglass. It normally comes in 4 ft x 8 ft sheets.

Normal houses have a framework of mainly 2×4 or larger wood lumber. Each wall has vertical 2×4 studs, spaced every 16”. Sheetrock is trimmed to size, and nailed or (these days) screwed into the studs.

That is the theory, anyway.

I have never done this stuff at large scale before, other than clumsily patching occasional small dings in a wall. A little while ago, I got to experience the process, hands-on. I was part of a team that helped someone whose basement had flooded. We cut out the lower ~4 ft of drywall, and replaced it with fresh drywall.

First, how to you cut drywall? A long, straight cut is accomplished by drawing a straight line and cutting along it, all the way through one layer of the facing paper. Then you hang the drywall sheet on the edge of a table, and crack the interior gypsum layer. Then you cut the other side of the paper. The end result of such a cut is like this:

Typically, you install drywall on the ceiling first. Then the top 4 ft of the walls, then the bottom 4 ft of the walls. You butt the pieces close to each other. For the lowest piece of drywall, you insert a curved metal wedge under it, and step on the wedge with your foot to lift that drywall piece to butt its top edge up against the upper piece. If you look carefully near the middle of the following photo, you can see the red wedge I used to jack up that small lower piece of drywall. It’s OK to leave a gap between the floor and the lower edge of the bottom drywall, since that gap will be covered by baseboard.

This was in a bathroom. I cut the lower green pieces with a little hand power saw, and screwed them into the studs, using the green and black driver visible on the stand in the left foreground.

The next two photos are before and after of a bedroom wall, again showing the bottom course of sheetrock we installed.

Filling in Cracks and Holes

As you can see, at this stage, there are like ¼” cracks between the installed sheets of sheetrock, and the mounting screw holes are visible. These imperfections are filled in with goo called joint compound, or “mud.” The mud is applied with a “knife” like this:

Cracks are covered with paper or fiberglass tape, with mud smeared over the tape. Typically, three layers of mud are needed to achieve perfect, smooth coverage. Each layer must dry hard before applying the next layer. Each layer may be sanded lightly as needed.

 A key technique is to tilt the knife so the mud is maybe 1/16” thick over the tape or over a screw, but taper the mud to zero thickness on the wall away from the tape or screw. This feathering is essential; if your mud layer ends with appreciable thickness instead of feathering, you have to do a lot of sanding to get a smooth blending into the plain drywall at that edge. Pro tip: carefully stir more water into the joint compound as needed to keep it wet and flowing, especially for overnight storage. This video from Vancouver Carpenter displays mudding technique.

That is mainly it. For perspective and confidence building, it is helpful to work with an expert, as I was able to do.

The theory of the firm remains unfinished

Why do firms exist? Transaction costs. Specialization. Returns to scale. Risk pooling. Reputation. Institutional capital. Is that everything? Probably not.

It wasn’t that long ago we were talking about the prevalence of zero marginal productivity employees within firms. Perhaps we should add low (zero?) marginal productivity employers to our list of considerations.

Graduate students rejoice, there remains more work to be done.

What is an AI Skill?

If you’ve been on LinkedIn recently, then you may have seen the chatter about teaching your artificial intelligence to have various skills. I saw one post by a guy who claimed to have created several skills, each representing a tech billionaire.

At first, I thought “I am behind the 8-ball. What is this new thing?”. Obviously I know what the word “skill” is and how people use it, but I had not encountered its use in the context of AI having it. What does it mean for an AI to have a skill? I somewhat dreaded the the work of learning the new skill of teaching my AI skills.

Then I had lunch with a computer scientist and I learned that skills are nothing new.

Continue reading

Does Broadband Bring Jobs?

No, according to a new paper from the University of Georgia’s Michael Kotrous.

Many people expected it to, partly by thinking about the jobs that could benefit from faster internet, and partly by looking at the experience of Chattanooga, Tennessee. Chattanooga was the first major city to get gigabit-speed broadband, and they did see a huge improvement in the labor market right afterwards:

But as the graph shows, the introduction of broadband there coincides with the end of the nationwide Great Recession. Was the boom in jobs after 2009 because of the broadband, or would it have happened anyway as party of the recovery from recession? A synthetic control strategy shows that Chattanooga’s recovery was pretty typical for cities like it, so the broadband angle probably didn’t do much:

This might seem like a historical curiosity about one city, but the federal government is currently trying to spend $42 billion to expand broadband to more places, partly motivated by the idea of bringing jobs. I thought the Broadband Equity Access and Deployment Program‘s big problem is how slow it is- Congress created with the Infrastructure Investment and Jobs Act of 2021, but money didn’t start getting sent out until late 2025, and it could be many more years before it leads to any useable broadband. Even then it now seems unlikely to bring jobs, though there could be other benefits.

This paper’s author Michael Kotrous is currently on the economics job market. As his former professor and coauthor, I recommend hiring him if your school gets the chance.