January 2021

IZA DP No. 14021: Public Procurement and Innovation for Human-Centered Artificial Intelligence

The possible negative consequences of Artificial Intelligence (AI) have given rise to calls for public policy to ensure that it is safe, and to prevent improper use and misuse. Human-centered AI (HCAI) draws on ethical principles and puts forth actionable guidelines in this regard. So far however, these have lacked strong incentives for adherence. In this paper we contribute to the debate on HCAI by arguing that public procurement and innovation (PPaI) can be used to incentivize HCAI. We dissect the literature on PPaI and HCAI and provide a simple theoretical model to show that procurement of innovative AI solutions underpinned by ethical considerations can provide the incentives that scholars have called for. Our argument in favor of PPaI for HCAI is also an argument for the more innovative use of public procurement, and is consistent with calls for mission-oriented and challenge-led innovation policies. Our paper also contributes to the emerging literature on public entrepreneurship, given that PPaI for HCAI can advance the transformation of society, but only under uncertaint.