[2607.12161] Token Reduction Is Not Cost Reduction

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arXiv:2607.12161 (cs)

[Submitted on 13 Jul 2026 (v1), last revised 15 Jul 2026 (this version, v2)]

Title:Token Reduction Is Not Cost Reduction

Authors:Sarel Weinberger, Amir Hozez<br>View a PDF of the paper titled Token Reduction Is Not Cost Reduction, by Sarel Weinberger and 1 other authors

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Abstract:Context-reduction layers for API-based coding agents, including command-output compressors, retrieval rankers, and API-boundary proxies, are commonly evaluated by how much context or tool output they remove. We ask a different question: which interventions actually reduce end-to-end billed cost while preserving task success?

Our primary evidence is a pre-specified, hash-frozen, paired campaign of 2,908 provider-billed Claude Code runs, of which 2,848 were analyzed, covering 103 tasks, seven repositories, and three models. The campaign compared a baseline with two generations of hook-based compression and an API-boundary proxy within a broader measured program of roughly 5,500 billed executions.

Three findings emerge. First, prompt-cache traffic dominated cost composition, accounting for about 87% of reconstructed four-component cost (about 80% of the actual bill), with an 8.7% dollar-weighted residual not attributable from retained telemetry. Second, local payload reduction was not a reliable predictor of end-to-end billed cost. An arm that removed 38% of estimated raw tool-output tokens incurred 6.8% higher paired cost (95% CI: +2.8% to +11.3%), while per-task reduction showed only a weak association with cost change (Pearson r = 0.15). Third, aggressive compression can remove action-critical evidence: on SWE-bench-derived Go tasks, compression reduced successful patch application from 27/40 to 15/40 by corrupting verbatim edit anchors.

We propose evaluating context-reduction systems by success-adjusted billed cost rather than token reduction alone.

Subjects:

Computation and Language (cs.CL)

Cite as:<br>arXiv:2607.12161 [cs.CL]

(or<br>arXiv:2607.12161v2 [cs.CL] for this version)

https://doi.org/10.48550/arXiv.2607.12161

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Submission history<br>From: Sarel Weinberger [view email]<br>[v1]<br>Mon, 13 Jul 2026 21:10:22 UTC (177 KB)

[v2]<br>Wed, 15 Jul 2026 08:42:05 UTC (179 KB)

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