Cost-of-Pass: An Economic Framework for Evaluating Language Models

The widespread adoption of AI systems in the economy hinges on their ability to generate economic value that outweighs their inference costs. Evaluating this tradeoff requires metrics that account for both performance and costs. Building on Farrell's theory of productive efficiency, we develop an economically grounded framework for evaluating language models' productivity by combining accuracy and inference cost. We formalize cost-of-pass, the expected monetary cost of generating a correct solution. We then define the frontier cost-of-pass as the minimum cost-of-pass achievable across available models or the human-expert(s), using the approximate cost of hiring an expert. Our analysis reveals distinct economic insights. First, lightweight models are most cost-effective for basic quantitative tasks, large models for knowledge-intensive ones, and reasoning models for complex quantitative problems, despite higher per-token costs. Second, tracking this frontier cost-of-pass over the past year reveals significant progress, particularly for complex quantitative tasks where the cost has roughly halved every few months. Third, to trace key innovations driving this progress, we examine counterfactual frontiers-estimates of cost-efficiency without specific model classes. We find that innovations in lightweight, large, and reasoning models have been essential for pushing the frontier in basic quantitative, knowledge-intensive, and complex quantitative tasks, respectively. Finally, we assess the cost-reductions from common inference-time techniques (majority voting and self-refinement), and a budgetaware technique (TALE-EP). We find that performance-oriented methods with marginal performance gains rarely justify the costs, while TALE-EP shows some promise. Overall, our findings underscore that complementary model-level innovations are the primary drivers of cost-efficiency, and our economic framework provides a principled tool for measuring this progress and guiding deployment. *