Efficient inefficiency: organisational challenges of realising economic gains from AI

Stuart Mills and David A. Spencer

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Organisations are increasingly using artificial intelligence (AI). Where AI performs productive tasks more efficiently than humans, organisations will benefit economically through increases in productivity. However, if AI is deployed to undertake unproductive, superfluous tasks, the efficiency benefits will be reduced, even if these tasks are performed more efficiently than a human could, because the said tasks are inefficient to begin with. We call this eventuality ‘efficient inefficiency.’ We outline several reasons why superfluous tasks are created by managers and why they persist in organisations, drawing on an array of behavioural, managerial, and sociological literature. We argue bounded rationality accounts for why managers often fail to identify superfluous tasks, coupled with organisational conflicts which often incentivise their creation. These factors impede the ability of organisations to avoid efficient inefficiency. Restructuring organisations to promote knowledge sharing and align stakeholder incentives may reduce, though not eliminate, the risk of efficient inefficiency.

Keywords: artificial intelligence; bounded rationality; organisational efficiency; productivity; superfluous work (search for similar items in EconPapers)
JEL-codes: D20 D83 L23 O33 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2025-02-28
New Economics Papers: this item is included in nep-eff and nep-hrm
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Published in Journal of Business Research, 28, February, 2025, 189. ISSN: 0148-2963

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