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Janus-Faced Technological Progress and the Arms Race in the Education of Humans and Chatbots

Wolfgang Kuhle

TL;DR

This model emphasizes that lognormal wage distributions imply that agents' wages increase exponentially in the level of their skill as well as in the level of technology, and pressures agents into an exhausting race for the tails of the economy's skill distribution.

Abstract

We study the conditions under which technological advances, in combination with a lognormal wage distribution, incentivize agents into an inefficient educational arms race. Our model emphasizes that lognormal wage distributions imply that agents' wages increase exponentially in the level of their skill as well as in the level of technology. In turn, this exponential relation between skills, technology, and wages pressures agents into an exhausting race for the tails of the economy's skill distribution. Moreover, technological advances and overinvestment in education increase GDP and inequality, while welfare may decline. In an alternative interpretation, our model studies firms that invest in artificial intelligence of their chatbots and AI agents. For a wide range of specifications, firms, just like humans, have an incentive to choose corner solutions where investment is limited only by borrowing constraints.

Janus-Faced Technological Progress and the Arms Race in the Education of Humans and Chatbots

TL;DR

This model emphasizes that lognormal wage distributions imply that agents' wages increase exponentially in the level of their skill as well as in the level of technology, and pressures agents into an exhausting race for the tails of the economy's skill distribution.

Abstract

We study the conditions under which technological advances, in combination with a lognormal wage distribution, incentivize agents into an inefficient educational arms race. Our model emphasizes that lognormal wage distributions imply that agents' wages increase exponentially in the level of their skill as well as in the level of technology. In turn, this exponential relation between skills, technology, and wages pressures agents into an exhausting race for the tails of the economy's skill distribution. Moreover, technological advances and overinvestment in education increase GDP and inequality, while welfare may decline. In an alternative interpretation, our model studies firms that invest in artificial intelligence of their chatbots and AI agents. For a wide range of specifications, firms, just like humans, have an incentive to choose corner solutions where investment is limited only by borrowing constraints.
Paper Structure (13 sections, 5 theorems, 22 equations, 1 table)

This paper contains 13 sections, 5 theorems, 22 equations, 1 table.

Table of Contents

  1. Introduction
  2. Related Literature:
  3. Model
  4. Pressure to Perform I: Median Income Falling Below Educational Outlays
  5. Pressure to Perform II: Preferences over Technology
  6. Pressure to Perform III: The Bell Curve Competition
  7. Calibration
  8. Preferences over the Income Distribution:
  9. Expected Value of one Additional IQ Point:
  10. Interpretation:
  11. Training of Chatbots and AI Agents
  12. Discussion
  13. Relative Utility

Key Result

Proposition 1

The expected wage income of agents increases exponentially in (i) the mean skill level $\mu$ and (ii) the square of technology coefficient $c$ and (iii) in the variance/riskiness $\sigma^2$ of the skill distribution.

Theorems & Definitions (5)

  • Proposition 1
  • Corollary 1
  • Proposition 2
  • Proposition 3
  • Proposition 4