LSE's Garicano: AI is erasing the economic advantage of specialization, BPEA paper finds
JMateosGarcia · x · 2026-10-12
JMateosGarcia highlights Luis Garicano's (LSE) paper for Brookings' BPEA Fall 2026, The Vanishing Advantage of Specialization. Key points:- Specialists exist because the fixed cost of acquiring knowledge is spread across many clients; AI cuts that fixed cost, benefiting infrequent users most- Expert work is reorganized: frequent problems move in-house, general verifiable knowledge production shifts up to model makers, and specialists keep only rare problems- This expansion of firm scope is the opposite prediction from falling transaction costs, so the two can be empirically distinguished- Preliminary evidence from ChatGPT usage, corporate legal departments, and freelance markets supports the shift, as does the accelerating decline in the share of lawyers, accountants, software developers, and management analysts employed in their main specialist industries
Related event: LSE's Garicano: AI Erodes Specialization and Reshapes Firm Boundaries(3 posts)→
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