Why AI Won’t Eliminate All Market Failures

Today’s StocksMoneyMarketsWhy AI Won’t Eliminate All Market FailuresByJames Broughel,Contributor.Forbes contributors publish independent expert analyses and insights. James Broughel is an economist focused on the economics of regulation.Follow AuthorJun 08, 2026, 06:03am EDT--:-- / --:--This voice experience is generated by AI. Learn more.This voice experience is generated by AI. Learn more.Industrial-scale cooling equipment at a large data center in Loudoun County, Virginia. AI will solve many problems, but it will create new ones as well, from pressure on local infrastructure to fraud.gettyArtificial intelligence is advancing so quickly that some observers see it as more than a new technology. They see it as a solution to one of economics’ oldest problems. Markets fail for many reasons, but a common thread runs through most of them. Information is costly to acquire. Finding the right trading partner takes time. Negotiating agreements is expensive. Monitoring performance is difficult. Economists refer to these frictions as transaction costs.AI optimists believe the technology could dramatically reduce those costs. In textbook economics, buyers and sellers find each other, know what they are buying, bargain freely and enforce promises at little cost. In the real world, however, people search, verify, compare, negotiate, monitor and sue. Those activities consume time and money. When they are expensive, gains from trade go unrealized. That is the basic insight of transaction cost economics. The boundary between markets that work and markets that fail lies in the cost of making a bargain work.AI can help because much of market exchange is really an information problem. A buyer wants to know what a contract says, whether a product is reliable, whether a supplier can be trusted and whether a better option exists elsewhere. AI can answer many of those questions faster and cheaper than before. It can make hidden information easier to find and complex information easier to...