Inefficient Automation

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Abstract/Contents

Abstract: Should the government intervene in the automation process? We study this question in a heterogeneous agent model where displaced workers reallocate slowly and face borrowing constraints. We first show that automation is inefficient. Firms are effectively too patient when they automate, and (partly) overlook the time it takes for labor to reallocate and for the benefits of automation to materialize. We then analyze a second best problem where the government indirectly controls automation and reallocation, but is unable to directly redistribute income between workers. The equilibrium is (constrained) inefficient—automation and reallocation impose pecuniary externalities on workers. The government should curb automation on efficiency grounds, even when it does not value equity. Finally, we use a quantitative version of our model to assess the importance of these distorsions and evaluate the welfare gains from slowing down automation.

Type of resource	text
Date created	August 17, 2021

DOI	https://doi.org/10.25740/xk924ns4894
Location	https://purl.stanford.edu/xk924ns4894

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License: This work is licensed under a Creative Commons Attribution 4.0 International license (CC BY).

Preferred citation: Beraja, M. and Zorzi, N. (2022). Inefficient Automation. Stanford Digital Repository. Available at https://purl.stanford.edu/xk924ns4894

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