The Economics of Machine Verification: Verification-Cost Shocks and the Extensive Margin of Monitoring
Year: 2026
Type: article
Abstract: Economics understands how costly verification disciplines behavior. This paper asks which claims become worth verifying at all when machine intelligence changes the technology of verification. I model verification as a technology vector: fixed and marginal costs, four pipeline reliabilities from detection to enforcement, and a false-positive rate. Three results follow. First, a verification frontier: the minimum economically contestable claim L*(τ,N) in claim value and claim volume, with component-wise comparative statics and a false-challenge-dominance condition under which monitoring entry is monotone. Second, recovery is the wrong success metric: under bounded misstatement gains and attainable full deterrence, measured recoveries are hump-shaped in verification effectiveness, and in general a technology that works can reduce measured recoveries. Third, private and social verification frontiers diverge: transfers and externalized dispute costs push private verification toward excess; uninternalized deterrence spillovers push it toward undersupply. The broader implication is institutional. Much of commercial architecture is adaptation to costly checking, and where the pipeline clears, a verification-cost collapse re-selects it. The open question is how much economic activity lies below the human verification frontier but above the machine one.
Author: GILL, AMRIT
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W7204143748
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