First, consider the “simple” example where a signatory company promises to donate 10% of its profits from a revolutionary AI system in 2060, a situation with an estimated probability of about 1%; the present value of this obligation would currently amount to U$650 million (in 2010 dollars). This seems a lot; however, I contend that, given investors’ hyperbolic discount, they probably wouldn’t be very concerned about it
Interesting. I don’t think it’s relevant, from a legal standpoint, that investors might discount hyperbolically rather than exponentially. I assume that a court would apply standard exponential discounting at market rates. But this is a promising psychological and pragmatic fact!
I’ve checked with some accountants, and this obligation would (today) be probably classified as a contingent liability of remote possibility (which, under IAS 37, means it wouldn’t impact the company’s balance sheet – it doesn’t even have to be disclosed in its annual report). So, I doubt such an obligation would negatively impact a company’s market value and profits (in the short-term); actually, as there’s no “bad marketing”, it could very well increase them.
If this is right, this is very helpful indeed :-)
Second (all this previous argument was meant to get here), would it violate some sort of fiduciary duty? Even if it doesn’t affect present investors, it could affect future ones: i.e., supposing the Clause is enforced, can these investors complain? That’s where things get messy to me. If the fiduciary duty assumes a person-affecting conception of duties (as law usually does), I believe it can’t. First, if the Clause were public, any investor that bought company shares after the promise would have done it in full knowledge – and so wouldn’t be allowed to complain; and, if it didn’t affect its market value in 2019, even older investors would have to face the objection “but you could have sold your shares without loss.” Also, given the precise event “this company made this discovery in such-and-such way”, it’s quite likely that the event of the promise figures in the causal chain that made this precise company get this result – it certainly didn’t prevent it! Thus, even future investors wouldn’t be allowed to complain.
I wonder if, in addition to the section B.2, the clause could framed as a compensation scheme in favor of a firm’s shareholders—at least if it was adopted conditionally to other firms adopting it (a kind of “good cartel”). Since the ex ante probability of one specific firm A obtaining future windfall profits from an AGIis lower than the probability of any of its present or future competitors doing it (so driving A out of business), it might be in the interest of these firms’ shareholders to hedge each other by committing to a windfall clause. (Of course, the problem with this argument is that it’d only justify an agreement covering the shareholders of each agreeing firm)
You are not the only person to have expressed interest in such an arrangement :-) Unfortunately I think there might be some antitrust problems with that.
I imagined so; but the idea just kept coming to my head, and since I hadn’t seen it explicitly stated, I thought it could be worth mentioning.
I think there might be some antitrust problems with that
I agree that, with current legislation, this is likely so.
But let me share a thought: even though we don’t have hedge for when one company succeeds so well it ends up dominating the whole market (and ruining all competitors in the process), we do have some compensation schemes (based on specific legislation) for when a company fails, like deposit insurance. The economic literature usually presents it as a public good (they’d decrease the odds of a bank run and so increase macroeconomic stability), but it was only accepted by the industry because it solved a lemons problem. Even today, the “green swan” (s. section 2) talk in finances often appeals to the risk of losses in a future global crisis (the Tragedy of the Horizon argument). My impression is that an innovation in financial regulation often starts with convincing banks and institutions that it’s in their general self-interest, and then it will become compulsory only to avoid free-riders.
(So, yeah, if tech companies get together with the excuse of protecting their investors (& everyone else in the process) in case of someone dominating the market, that’s collusion; if banks do so, it’s CSR)
(epistemic status about the claims on deposit insurance: I shoud have made a better investigation in economic history, but I lack the time, the argument is consistent, and I did have first hand experience with the creation of a depositor insurance fund for credit unions—i.e., it didn’t mitigate systemic risk, it just solved depositors risk-aversion)
Thanks Ramiro!
Interesting. I don’t think it’s relevant, from a legal standpoint, that investors might discount hyperbolically rather than exponentially. I assume that a court would apply standard exponential discounting at market rates. But this is a promising psychological and pragmatic fact!
If this is right, this is very helpful indeed :-)
See § III of the report :-)
I wonder if, in addition to the section B.2, the clause could framed as a compensation scheme in favor of a firm’s shareholders—at least if it was adopted conditionally to other firms adopting it (a kind of “good cartel”). Since the ex ante probability of one specific firm A obtaining future windfall profits from an AGI is lower than the probability of any of its present or future competitors doing it (so driving A out of business), it might be in the interest of these firms’ shareholders to hedge each other by committing to a windfall clause. (Of course, the problem with this argument is that it’d only justify an agreement covering the shareholders of each agreeing firm)
You are not the only person to have expressed interest in such an arrangement :-) Unfortunately I think there might be some antitrust problems with that.
I imagined so; but the idea just kept coming to my head, and since I hadn’t seen it explicitly stated, I thought it could be worth mentioning.
I agree that, with current legislation, this is likely so.
But let me share a thought: even though we don’t have hedge for when one company succeeds so well it ends up dominating the whole market (and ruining all competitors in the process), we do have some compensation schemes (based on specific legislation) for when a company fails, like deposit insurance. The economic literature usually presents it as a public good (they’d decrease the odds of a bank run and so increase macroeconomic stability), but it was only accepted by the industry because it solved a lemons problem. Even today, the “green swan” (s. section 2) talk in finances often appeals to the risk of losses in a future global crisis (the Tragedy of the Horizon argument). My impression is that an innovation in financial regulation often starts with convincing banks and institutions that it’s in their general self-interest, and then it will become compulsory only to avoid free-riders.
(So, yeah, if tech companies get together with the excuse of protecting their investors (& everyone else in the process) in case of someone dominating the market, that’s collusion; if banks do so, it’s CSR)
(epistemic status about the claims on deposit insurance: I shoud have made a better investigation in economic history, but I lack the time, the argument is consistent, and I did have first hand experience with the creation of a depositor insurance fund for credit unions—i.e., it didn’t mitigate systemic risk, it just solved depositors risk-aversion)