The Precautionary Principle and the Innovation Principle

Kim Kaivanto

No 423283411, Working Papers from Lancaster University Management School, Economics Department

Abstract: In policy debates concerning the governance and regulation of Artificial Intelligence (AI), both the Precautionary Principle (PP) and the Innovation Principle (IP) are advocated by their respective interest groups. Do these principles offer wholly incompatible and contradictory guidance? Does one necessarily negate the other? I argue here that provided attention is restricted to weak-form PP and IP, the answer to both of these questions is “No.†The essence of these weak formulations is the requirement to fully account for type-I error costs arising from erroneously preventing the innovation’s diffusion through society (i.e. mistaken regulatory redlighting) as well as the type-II error costs arising from erroneously allowing the innovation to diffuse through society (i.e. mistaken regulatory green-lighting). Within the Signal Detection Theory (SDT) model developed here, weak-PP red-light (weak-IP green-light) determinations are optimal for sufficiently small (large) ratios of expected type-I to type-II error costs. For intermediate expected cost ratios, an amber-light ‘wait-and-monitor’ policy is optimal. Regulatory sandbox instruments allow AI testing and experimentation to take place within a structured environment of limited duration and societal scale, whereby the expected cost ratio falls within the ‘wait-and-monitor’ range. Through sandboxing regulators and innovating firms learn more about the expected cost ratio, and what respective adaptations — of regulation, of technical solution, of business model, or combination thereof, if any — are needed to keep the ratio out of the weak-PP red-light zone.

Keywords: artificial intelligence; foundational AI; general-purpose AI systems; AI governance; precautionary principle; innovation principle; countervailing risk; scientific uncertainty; signal detection theory; misclassification costs; discriminability; ROC curve; de minimis risk; trust and polarization; protected values; non-comparable values; continuity axiom; regulatory sandboxes (search for similar items in EconPapers)
JEL-codes: D81 O31 O33 O38 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-ain
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.lancaster.ac.uk/media/lancaster-univers ... casterWP2025_003.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lan:wpaper:423283411

Access Statistics for this paper

More papers in Working Papers from Lancaster University Management School, Economics Department Contact information at EDIRC.
Bibliographic data for series maintained by Giorgio Motta ().