Discussion paper

DP18625 Regulating Artificial Intelligence

We consider an environment in which there is substantial uncertainty about the potential adverse external effects of AI algorithms. We find that subjecting algorithm implementation to regulatory approval or mandating testing is insufficient to implement the social optimum. When testing costs are low, a combination of mandatory testing for external effects and making developers liable for the adverse external effects of their algorithms comes close to implementing the social optimum even when developers have limited liability.


Guerreiro, J, S Rebelo and P Teles (2023), ‘DP18625 Regulating Artificial Intelligence‘, CEPR Discussion Paper No. 18625. CEPR Press, Paris & London. https://cepr.org/publications/dp18625