We study the optimal allocation of tasks over the life cycle of an innovative project. Innovation requires two complementary activities, research and development, both subject to moral hazard. Agents also privately observe the quality of discoveries, so the principal must elicit truthful reports to avoid costly mistakes. Assigning both tasks to a single "solo operator" avoids free-riding but creates a double-deviation problem: the agent can...

We study how artificial intelligence affects welfare in general equilibrium when production requires both finding and solving problems. Unsolved problems are unexploited opportunities or unmet needs that agents find in a congested sector. Problems are solved in layered hierarchies in which agents can ask for help. Firms may adopt a replicable AI agent in either activity. AI deployed in solving problems splits the human knowledge...