Pathway to Sustainability: A Commentary on AI’s Role in Mitigating Sustainability Externalities

A key problem with the existing market system is the existence of externalities, activities that have not been incorporated into the value structure of industrial classification, except for being grouped with all similarly unquantifiable activities. Failure to include the external costs and benefits related to economic activity distorts market values and, by extension, the supply and demand of the products that result from them. Addressing externalities is therefore an essential component of improving sustainability, as market distortions lead to the overproduction of harmful activities and an underproduction of beneficial activities, biasing the production function to suboptimal welfare outcomes. Artificial intelligence offers a potential pathway to provide insights into externalities, both positive and negative, by linking them to their causal activities, allowing for inclusion into market transactions where price mechanisms can prove more effective at producing a socially desirable and environmentally sustainable equilibrium.