The Backfiring Effect of Weak AI Safety Regulation

Recent policy proposals aim to improve the safety of general-purpose AI, but there is little understanding of the efficacy of different regulatory approaches to AI safety. We present a strategic model that explores the interactions between safety regulation, the general-purpose AI technology creators, and domain specialists--those who adapt the technology for specific applications. Our analysis examines how different regulatory measures, targeting different parts of the AI development chain, affect the outcome of this game. In particular, we assume AI technology is characterized by two key attributes: \emph{safety} and \emph{performance}. The regulator first sets a minimum safety standard that applies to one or both players, with strict penalties for non-compliance. The general-purpose creator then invests in the technology, establishing its initial safety and performance levels. Next, domain specialists refine the AI for their specific use cases, updating the safety and performance levels and taking the product to market. The resulting revenue is then distributed between the specialist and generalist through a revenue-sharing parameter. Our analysis reveals two key insights: First, weak safety regulation imposed predominantly on domain specialists can backfire. While it might seem logical to regulate AI use cases, our analysis shows that weak regulations targeting domain specialists alone can unintentionally reduce safety. This effect persists across a wide range of settings. Second, in sharp contrast to the previous finding, we observe that stronger, well-placed regulation can in fact mutually benefit \emph{all} players subjected to it. When regulators impose appropriate safety standards on both general-purpose AI creators and domain specialists, the regulation functions as a commitment device, leading to safety and performance gains, surpassing what is achieved under no regulation or regulating one player alone.