IDEAS home Printed from https://ideas.repec.org/p/pie/dsedps/2024-313.html
   My bibliography  Save this paper

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
    as

    Download full text from publisher

    File URL: https://www.ec.unipi.it/documents/Ricerca/papers/2024-313.pdf
    Download Restriction: no
    ---><---

    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.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wright, Austin L. & Sonin, Konstantin & Driscoll, Jesse & Wilson, Jarnickae, 2020. "Poverty and economic dislocation reduce compliance with COVID-19 shelter-in-place protocols," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 544-554.
    2. Jolian McHardy & Michael Reynolds & Stephen Trotter, 2012. "The Stackelberg Model as a Partial Solution to the Problem of Pricing in a Network," Working Paper series 19_12, Rimini Centre for Economic Analysis.
    3. Janvier D. Nkurunziza, 2005. "Reputation and Credit without Collateral in Africa`s Formal Banking," Economics Series Working Papers WPS/2005-02, University of Oxford, Department of Economics.
    4. Stephanie Rosenkranz & Patrick W. Schmitz, 2007. "Can Coasean Bargaining Justify Pigouvian Taxation?," Economica, London School of Economics and Political Science, vol. 74(296), pages 573-585, November.
    5. Vadim Borokhov, 2014. "On the properties of nodal price response matrix in electricity markets," Papers 1404.3678, arXiv.org, revised Jan 2015.
    6. Yuzhou Jiang & Ramteen Sioshansi, 2023. "What Duality Theory Tells Us About Giving Market Operators the Authority to Dispatch Energy Storage," The Energy Journal, , vol. 44(3), pages 89-110, May.
    7. Daniel Sutter & Daniel J. Smith, 2017. "Coordination in disaster: Nonprice learning and the allocation of resources after natural disasters," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 30(4), pages 469-492, December.
    8. Hanming Fang & Peter Norman, 2014. "Toward an efficiency rationale for the public provision of private goods," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 56(2), pages 375-408, June.
    9. Gan, Li & Ju, Gaosheng & Zhu, Xi, 2015. "Nonparametric estimation of structural labor supply and exact welfare change under nonconvex piecewise-linear budget sets," Journal of Econometrics, Elsevier, vol. 188(2), pages 526-544.
    10. Peterson, Jeffrey M. & Boisvert, Richard N. & de Gorter, Harry, 1999. "Multifunctionality and Optimal Environmental Policies for Agriculture in an Open Economy," Working Papers 127701, Cornell University, Department of Applied Economics and Management.
    11. Tian, Guoqiang, 2009. "Implementation of Pareto efficient allocations," Journal of Mathematical Economics, Elsevier, vol. 45(1-2), pages 113-123, January.
    12. Ahmad Naimzada & Marina Pireddu, 2019. "The first fundamental theorem of welfare in a general equilibrium evolutionary setting," Working Papers 415, University of Milano-Bicocca, Department of Economics, revised 06 Jun 2019.
    13. Gajanan Panchal & Vipul Jain & Naoufel Cheikhrouhou & Matthias Gurtner, 2017. "Equilibrium analysis in multi-echelon supply chain with multi-dimensional utilities of inertial players," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 16(4), pages 417-436, August.
    14. Aldasoro, Iñaki & Delli Gatti, Domenico & Faia, Ester, 2017. "Bank networks: Contagion, systemic risk and prudential policy," Journal of Economic Behavior & Organization, Elsevier, vol. 142(C), pages 164-188.
    15. Gatti, Nicolas & Cecil, Michael & Baylis, Kathy & Estes, Lyndon & Blekking, Jordan & Heckelei, Thomas & Vergopolan, Noemi & Evans, Tom, 2023. "Is closing the agricultural yield gap a “risky” endeavor?," Agricultural Systems, Elsevier, vol. 208(C).
    16. Aldo Montesano, 2018. "Social welfare for an economy of angelic agents," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 65(2), pages 185-200, June.
    17. Alexei A. Gaivoronski & Per Jonny Nesse & Olai Bendik Erdal, 2017. "Internet service provision and content services: paid peering and competition between internet providers," Netnomics, Springer, vol. 18(1), pages 43-79, May.
    18. Romero-Jordán, Desiderio & del Río, Pablo & Peñasco, Cristina, 2016. "An analysis of the welfare and distributive implications of factors influencing household electricity consumption," Energy Policy, Elsevier, vol. 88(C), pages 361-370.
    19. Araoz, Veronica & Jörnsten, Kurt, 2011. "Semi-Lagrangean approach for price discovery in markets with non-convexities," European Journal of Operational Research, Elsevier, vol. 214(2), pages 411-417, October.
    20. Chorvat, Terrence, 2006. "Taxing utility," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 35(1), pages 1-16, February.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pie:dsedps:2024/313. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/dspisit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.