What Are the Costs of Delayed Technology Adoption? Evidence from Italy’s Ban of ChatGPT

Abstract

On March 31, 2023, the Italian Data Protection Authority found ChatGPT in violation of privacy laws and banned the service in Italy, providing a natural experiment to evaluate the economic losses stemming from the delayed adoption of generative AI. Italian firms with higher exposure to the technology experience a 9% negative stock return during the ban period compared to firms with lower exposure. The negative impact is greater for smaller and more newly established businesses. We further utilize job posting data to demonstrate that Italian firms in industries with high AI exposure experience a significant decline in full-time job postings, particularly for non-ChatGPT-replaceable roles. This decline persists into the post-ban period without signs of reversal, consistent with the path-dependency theory of resource accumulation. Moreover, firms in these industries also exhibit a decline in patent applications during and after the ban. These changes in real activities help explain the substantial value losses associated with even a short-term delay in technology adoption. Collectively, our results suggest the far-reaching impacts of delays in adopting revolutionary AI technologies.

Keywords: Generative AI, ChatGPT, privacy, disruption, innovation

JEL Classification: O00, O33, O38, E44, E65, G10, G14.