The Price of Intelligence: How Should Socially-minded Firms Price and Deploy AI?

Nils Lehr and Pascual Restrepo
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Nils Lehr: International Monetary Fund
Pascual Restrepo: Yale University

No 2445, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: Leading AI firms claim to prioritize social welfare. How should firms with a social mandate price and deploy AI? We derive pricing formulas that depart from profit maximization by incorporating incentives to enhance welfare and reduce labor disruptions. Using US data, we evaluate several scenarios. A welfarist firm that values both profit and welfare should price closer to marginal cost, as efficiency gains outweigh distributional concerns. A conservative firm focused on labormarket stability should price above the profit-maximizing level in the short run, especially when its AI may displace low-income workers. Overall, socially minded firms face a trade-off between expanding access to AI and the resulting loss in profits and labor market risks.

Pages: 32 pages
Date: 2025-05-20
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