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A Principal-Agent Model for Ethical AI: Optimal Contracts and Incentives for Ethical Alignment

Author

Listed:
  • Dae-Hyun Yoo
  • Caterina Giannetti

Abstract

This paper presents a principal-agent model for aligning artificial intelligence (AI) behaviors with human ethical objectives. In this framework, the end-user acts as the principal, offering a contract to the system developer (the agent) that specifies desired ethical alignment levels for the AI system. This incentivizes the developer to align the AI’s objectives with ethical considerations, fostering trust and collaboration. When ethical alignment is unobservable and the developer is risk-neutral, the optimal contract achieves the same alignment and expected utilities as when it is observable. For observable alignment levels, a fixed reward is uniquely optimal for strictly risk-averse developers, while for risk-neutral developers, a fixed reward is one of several optimal options. Our findings demonstrate that even a basic principal-agent model can enhance the understanding of how to balance responsibility between users and developers in the pursuit of ethical AI. Users seeking higher ethical alignment must compensate developers appropriately, and they also share responsibility for ethical AI by adhering to design specifications and regulations.

Suggested Citation

  • Dae-Hyun Yoo & Caterina Giannetti, 2024. "A Principal-Agent Model for Ethical AI: Optimal Contracts and Incentives for Ethical Alignment," Discussion Papers 2024/313, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    • Handle: RePEc:pie:dsedps:2024/313
    Note: ISSN 2039-1854
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    File URL: https://www.ec.unipi.it/documents/Ricerca/papers/2024-313.pdf
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    References listed on IDEAS

    as
    1. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    2. Steve Phelps & Rebecca Ranson, 2023. "Of Models and Tin Men: A Behavioural Economics Study of Principal-Agent Problems in AI Alignment using Large-Language Models," Papers 2307.11137, arXiv.org, revised Sep 2023.
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    More about this item

    Keywords

    AI Ethics; Ethical Alignment; Principal-Agent Model; Contract Theory; Responsibility Allocation; Economic Incentives;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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