A Formal Model of the Economic Impacts of AI Openness Regulation

• URL: http://arxiv.org/abs/2507.14193v1
• Date: Mon, 14 Jul 2025 07:08:31 GMT
• Title: A Formal Model of the Economic Impacts of AI Openness Regulation
• Authors: Tori Qiu, Benjamin Laufer, Jon Kleinberg, Hoda Heidari,
• Abstract summary: This paper models the strategic interactions among the creator of a general-purpose model (the generalist) and the entity that fine-tunes the general-purpose model to a specialized domain or task.<n>We present a stylized model of the regulator's choice of an open-source definition to evaluate which AI openness standards will establish appropriate economic incentives for developers.
• Score: 8.438080379702125
• License: http://creativecommons.org/licenses/by/4.0/
• Abstract: Regulatory frameworks, such as the EU AI Act, encourage openness of general-purpose AI models by offering legal exemptions for "open-source" models. Despite this legislative attention on openness, the definition of open-source foundation models remains ambiguous. This paper models the strategic interactions among the creator of a general-purpose model (the generalist) and the entity that fine-tunes the general-purpose model to a specialized domain or task (the specialist), in response to regulatory requirements on model openness. We present a stylized model of the regulator's choice of an open-source definition to evaluate which AI openness standards will establish appropriate economic incentives for developers. Our results characterize market equilibria -- specifically, upstream model release decisions and downstream fine-tuning efforts -- under various openness regulations and present a range of effective regulatory penalties and open-source thresholds. Overall, we find the model's baseline performance determines when increasing the regulatory penalty vs. the open-source threshold will significantly alter the generalist's release strategy. Our model provides a theoretical foundation for AI governance decisions around openness and enables evaluation and refinement of practical open-source policies.

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