AI-Enabled Policymaking and Public Value Creation: Mediating Effect of Institutional Effectiveness

Abstract

This study aims to explore how AI-driven policy development affects public value creation, highlighting the intervening effect of institutional effectiveness. With AI becoming more ubiquitous in the decision-making process, the formulation of policy, and service delivery across multiple governments, an understanding of the conditions that give AI meaning in creating a positive impact on society is essential. The research design of the study is quantitative research with a cross-sectional survey approach involving 300 participants in the form of public sector employees, digital governance experts and policymakers from three major cities of Pakistan namely Islamabad, Rawalpindi and Lahore. The data collection instrument is a structured questionnaire with Likert-type items which assesses AI-enabled policymaking practices, institutional effectiveness and public value creation. The reliability and the validity of the scales are established, and then the correlation and regression analyses are conducted to check the hypotheses. The indirect effect of institutional effectiveness is estimated by mediation analysis based on bootstrapping and structural equation modeling. The results indicate that the incorporation of AI in policymaking process has a notable impact on the creation of public value and the effectiveness of institutions. The association between AI adoption and the creation of public value was found to be partially mediated by institutional effectiveness, highlighting the importance of having robust, capable, and accountable institutions to support technological efforts. This result underscores the need to combine institutional capacity development, ethical governance and accountability with the use of AI tools, in order to maximize the potential of public value. This study makes a meaningful contribution to the body of knowledge of digital governance by showcasing that AI usage is not inherently social good, but rather the institutional architecture plays a crucial role in shaping the societal outcomes of AI.