Artificial Intelligence in Team Dynamics: Who Gets Replaced and Why? / Xienan Cheng, Mustafa Dogan, Pinar Yildirim.

Format:

Book

Author/Creator:

Cheng, Xienan.

Contributor:

Dogan, Mustafa.

Yildirim, Pinar.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w34259.

NBER working paper series no. w34259

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2025.

Summary:

This study investigates the effects of artificial intelligence (AI) adoption in organizations. We ask: (1) How should a principal optimally deploy limited AI resources to replace workers in a team? (2) In a sequential workflow, which workers face the highest risk of AI replacement? (3) How does substitution with AI affect both the replaced and non-replaced workers' wages? We develop a sequential team production model in which a principal can use peer monitoring--where each worker observes the effort of their predecessor--to discipline team members. The principal may replace some workers with AI agents, whose actions are not subject to moral hazard. Our analysis yields four key results. First, the optimal AI strategy stochastically replaces workers rather than fixating on a single position. Second, the principal replaces workers at the beginning and at the end of the workflow, but does not replace the middle worker, since this worker is crucial for sustaining the flow of information obtained by peer monitoring. Third, the principal may optimally underutilize available AI capacity. Fourth, the optimal AI adoption increases average wages and reduces intra-team wage inequality.

Notes:

September 2025.

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