Year: 2026
Type: preprint
Abstract: The pharmaceutical industry operates at the intersection of financial incentives, state oversight, and public scrutiny. We model corporate compliance with a three-population replicator system of ethical firms, active regulators, and active public scrutiny, whose payoffs are motivated by a prisoner's dilemma of first-mover advantage, an inspection game between firms and the FDA, and a volunteer's dilemma in early-stage research. The eight payoff constants are fitted by bounded L-BFGS-B optimization to composite indices for 2010--2024, and a fully sourced dataset of fifteen heavily penalized firms links the model's strategy types to R&D intensity and penalties. The calibrated system has no interior fixed point: an exact identity shows that public scrutiny decays at a rate set by the difference between the regulators' and the public's cost-to-benefit ratios. Without public scrutiny the firm--regulator dynamics are conformally Hamiltonian, so the two populations cycle neutrally around a center, and Lyapunov exponents give no evidence of chaos. Bureaucratic friction $k$, which enters compliance costs as $k^3$, organizes two thresholds: above $k^*\approx0.75$ regulators saturate and compliance rests on public scrutiny, and above $k^{**}\approx0.81$ compliance collapses. The empirical friction index crosses both between 2016 and 2020, as the compliance index falls from $0.85$ to $0.60$. Relative to revenue, penalties are highest for the firms with the lowest R&D intensity. Ethical compliance is therefore an oscillating rather than a permanent state, persisting only while friction stays below the combined incentive of subsidies, fines, and public penalties.
Source: arXiv (Cornell University)
Authors: Polyak, Alanna, Zdyrski, Thomas
Institution: Dartmouth College
Language: English
Subfield: Public Administration
Field: Social Sciences
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W7223838834