When Solutions Are Abundant but Problems Scarce: AI in the Market for Knowledge

Sep 18, 2026

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 hierarchy: greater AI capability affects the layers above AI, whereas lower cost affects the layers below it. Either form of progress can lower welfare by reallocating solvers to the congested finding sector. A tax on finding corrects this distortion; when this is not possible, the optimal tax on AI can be positive or negative, depending on its effect on the congestion externality.


Felix Feng

Felix Feng

University of Georgia

Brett Green

Brett Green

Washington University in St.Louis

Curtis Taylor

Curtis Taylor

Mark Westerfield

Mark Westerfield

University of Washington