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Each of these phenomena have a name However, there is an interesting economics principle that suggests that it might not be all doom and gloom if ai can bring efficiency to the legal profession. There’s jevons paradox, which means, “we’ll spend more on what gets more productive”, and there’s the baumol effect, which means, “we’ll spend more on what doesn’t get more productive.” and both of them are top of mind right now, as we watch in awe at what is happening with ai capex spend.

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What do jevon’s paradox and baumol effect have to do with the ai supercycle An early example was observed in the context of coal consumption in the 19th century. In “why ac is cheap, but ac repair is a luxury”, a16z writer alex danco explains how both phenomena will impact.

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This is not an accident but an inevitability predicted by economists

In the 1960s, jevons proposed the baumol's cost disease theory. Stay ahead with legal ai benchmarking Discover how to assess accuracy, security, and value for your firm’s workflows. Top news and commentary for technology's leaders, from all around the web.

100 years after jevons published his observation on coal, william baumol published a short paper investigating why so many orchestras, theaters, and opera companies were running out of money. This paper examines how the problem of jevons’ paradox applies to ai, whereby efficiency gains may paradoxically spur increased consumption Jevons paradox seems to apply, piao says He sees ai becoming accessible to startups, schools and small businesses, thereby expanding the market and, in turn, increasing — not lessening — energy demand and ai use

“even with efficient models, ai’s complexity is growing exponentially,” piao says.

In short, jevons paradox occurs when improvements in efficiency lead to greater demand for a resource