Market Incentives for AI Safety Investment
Abstract
Despite their practical significance, modern AI systems pose significant societal risks, including toxicity, malicious use, and misinformation. Their mitigation depends not only on technical feasibility but also on the incentives of firms that develop and deploy these systems. We show how profit maximization shapes safety investment in an AI supply chain with an upstream LLM provider and several competing downstream firms. In our game-theoretic model, we derive the market-driven level of safety investment and compare it with the levels that maximize industry profit and market welfare. We find that downstream competition generally induces downstream firms to invest more in safety than the industry-profit-optimal level. By contrast, the upstream provider may underinvest relative to these benchmarks because it is not fully compensated for the surplus from safety investments. Finally, we analyze how different regulatory interventions affect the participants' incentives and profits, and the resulting levels of model safety.
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BibTeX
@misc{tsoy2026market,
title = {{Market Incentives for AI Safety Investment}},
author = {Nikita Tsoy},
howpublished = {arXiv},
year = {2026},
month = oct,
doi = {10.48550/arxiv.2610.21607},
eprint = {2610.21607},
archivePrefix = {arXiv},
url = {https://arxiv.org/abs/2610.21607},
note = {CC BY 4.0},
}
RIS
TY - UNPB
TI - Market Incentives for AI Safety Investment
AU - Nikita Tsoy
PY - 2026
DA - 2026/10/29
PB - arXiv
DO - 10.48550/arxiv.2610.21607
UR - https://arxiv.org/abs/2610.21607
AB - Despite their practical significance, modern AI systems pose significant societal risks, including toxicity, malicious use, and misinformation. Their mitigation depends not only on technical feasibility but also on the incentives of firms that develop and deploy these systems. We show how profit maximization shapes safety investment in an AI supply chain with an upstream LLM provider and several competing downstream firms. In our game-theoretic model, we derive the market-driven level of safety investment and compare it with the levels that maximize industry profit and market welfare. We find that downstream competition generally induces downstream firms to invest more in safety than the industry-profit-optimal level. By contrast, the upstream provider may underinvest relative to these benchmarks because it is not fully compensated for the surplus from safety investments. Finally, we analyze how different regulatory interventions affect the participants' incentives and profits, and the resulting levels of model safety.
ER -