Research

What is the macroeconomic effect of AI? One important channel is that AI will increase the productivity of software engineering, which this paper measures using asset prices. Asset prices capitalize not only current productivity gains due to AI, but also a forecast of future gains expected by the market. We estimate a cross-sectional relationship between the exposure of firms’ stock returns to an AI index and their software engineering intensity, and develop a model that maps this relationship into software engineering productivity and GDP. Under our baseline calibration, news about AI from November 2022 to December 2025 implies a market forecast for present-value software engineering productivity gains equivalent to a permanent increase of 30.5 percent. These gains imply one-time permanent increases in GDP of 3.3 percent through production alone and 6.0 percent when higher software engineering productivity also raises R&D productivity. A further benefit of our approach is that it can be updated in real time: incorporating returns from the first months of 2026, a period of rapid progress in AI coding agents, implies substantially larger market-implied gains in software engineering productivity, with a correspondingly larger GDP impact.

A growing literature documents rising sales concentration at “superstar” firms. But aggregate market share need not measure how important a firm is to its customers. Using trillions of dollars of credit- and debit-card transactions covering the near universe of firms in a broad set of U.S. consumer-facing retail and service categories, we measure firms’ “effective” market shares, defined as their shares of category spending among the particular customers they serve. Effective shares rise only weakly with conventional measures of firm size, meaning that large differences in aggregate market shares correspond to much smaller differences in effective shares. This distinction is economically meaningful: effective shares better predict persistent customer relationships and switching responses to new entrants. This weak mapping reflects two opposing forces. As firms grow, they deepen relationships with existing customers, raising effective shares, but they also reach more marginal customers, whose lower effective shares offset this increase. Prominent sources of recent firm growth, including geographic expansion and e-commerce, tilt toward reach rather than depth. Thus, aggregate sales concentration has risen substantially over the last decade without a commensurate increase in average effective shares. Interpreted through the lens of a variable-markup model with persistent customer heterogeneity, this empirical pattern suggests that rising concentration has not led to a comparable rise in size-based product-market power.