New innovations lead to inequality
Korinek and Stiglitz ’19 (Anton Korinek - Professor in the Department of Economics and at the Darden School of Business at the University of Virginia as well as a David M. Rubenstein Fellow at the Brookings Institution and Joseph E. Stiglitz - American New Keynesian economist, a public policy analyst, political activist, and a full professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences and the John Bates Clark Medal, “Artificial Intelligence and Its Implications for Income Distribution and Unemployment”, May 2019, pg. 4, https://www-nber-org.proxy.lib.umich.edu/system/files/chapters/c14018/c14018.pdf) GM
In section 3, we decompose the mechanisms through which innovation leads to inequality into two channels. First, inequality rises because innovators earn a surplus. Unless markets for innovation are fully contestable, the surplus earned by innovators is generally in excess of the costs of innovation and includes what we call innovator rents. We discuss policies that affect the sharing of such rents, such as antitrust policies and changes in intellectual property rights. The second channel is that innovations affect market prices; they change the demand for factors such as different types of labor and capital, which affects their prices and generates redistributions. For example, AI may reduce a wide range of human wages and generate a redistribution to entrepreneurs. From the perspective of our first- best benchmark with complete insurance markets, these factor price changes represent pecuniary externalities. We discuss policies to counter the effects of the resulting factor price changes.