JOINT ECON-S&P: Product Safety in the Age of AI: Autonomy, R&D, and AI Liability; Professor Xinyu Hua (Hong Kong University of Science and Technology)

Abstract

We study optimal liability for AI-powered products with semi-autonomous capabilities (e.g., self-driving vehicles). Both AI and human user errors can cause product failures that harm third parties. While AI introduces the extreme risk of large-scale social harm that renders full liability impractical, a well-designed liability rule for ordinary loss can implement efficient levels of autonomy and R&D investment in AI safety under a "balanced" R&D condition. However, full efficiency cannot be achieved when R&D efforts are specifically targeted at mitigating extreme risks. Notably, optimal liabilities for AI and human users differ even when the losses incurred are identical.