Does Artificial Intelligence Lower Experimentation Costs for New Entrepreneurs?
, Finance PhD Student
This study explores the impact of artificial intelligence (AI) on entrepreneurship, specifically focusing on whether AI breakthroughs, such as the release of ChatGPT, lower experimentation costs for new entrepreneurs and subsequently boost venture formation. The productivity-augmenting nature of AI presents conflicting implications for entrepreneurship: while higher wages from increased productivity may discourage self-employment, reduced costs of experimentation may promote venture formation. Using industry-state level data, the research evaluates the effect of the democratized access to AI tools on firm creation across regions and industries with varying levels of compatibility with AI technologies. Preliminary results indicate that industry-state pairs with stronger levels of AI compatibility—prior to the technological shock—experienced a relatively higher rate of firm formation following the release of ChatGPT. Further analysis suggests that the increase in new firms is particularly concentrated among small ventures, implying that reduced experimentation costs are a likely mechanism linking AI advancements to new venture creation.