Modeling the Economic Impacts of AI Openness Regulation

Tori Qiu, Benjamin Laufer, Jon Kleinberg, Hoda Heidari

Advances in Neural Information Processing Systems 38 (NeurIPS 2025) Main Conference Track

Regulatory frameworks, such as the EU AI Act, encourage openness of general-purpose AI models by offering legal exemptions for "open-source" models. Despite this legislative attention on openness, the definition of open-source foundation models remains ambiguous. This paper presents a stylized model of the regulator's choice of an open-source definition in order to evaluate which standards will establish appropriate economic incentives for developers. In particular, we model the strategic interactions among the creator of the general-purpose model (the generalist) and the entity that fine-tunes the general-purpose model to a specialized domain or task (the specialist), in response to the regulator. Our results characterize market equilibria -- specifically, upstream model release decisions and downstream fine-tuning efforts -- under various openness policies and present an optimal range of open-source thresholds as a function of model performance. Overall, we identify a curve defined by initial model performance which determines whether increasing the regulatory penalty vs. increasing the open-source threshold will meaningfully alter the generalist's model release strategy. Our model provides a theoretical foundation for AI governance decisions around openness and enables evaluation and refinement of practical open-source policies.