The Market for AI-Assisted Signaling

Abstract

This paper studies a market in which AI providers choose technologies and prices for assistance used to signal ability. Individual adoption is unobserved. Profitable assistance can lower welfare relative to signaling without AI, even when ability remains fully revealed. Easier imitation increases the output required to demonstrate ability, and the extra signaling can outweigh production savings. Providers can profit from improving assistance for lower-ability senders because this increases higher-ability senders' purchases. Such improvements can lower welfare relative to retaining existing tools. Competition among providers offering the same technology supports full information, but development costs can sustain monopoly provision that conceals ability. Greater verification capacity can also reduce information by changing which customers providers serve.