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Paper #1017
Microfoundations of Fiscal Capture and Conflictoring: A Laffont-Tirole Derivation
The paper derives the Fiscal Capture threshold (φ*) and Conflictoring equilibrium from a Laffont-Tirole principal-agent model, showing that fiscal capture emerges endogenously from revenue dependence. The derivation yields testable predictions and falsification conditions, strengthening the theoretical foundations of the canon.
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Theorem status: evidence-traced claim under the cited paper's assumptionsFalsification: show the same game preserving system welfare without changing the payoff structure
KEY FINDINGS
THEOREM
Proposition 2: The fiscal capture threshold φ* satisfies β(φ*) = (θ_H + (ν/(1-ν))ψ'(e_H)Δθ - (S'(q_W*) - h)) / τ. Proposition 3: For any β > 0, the optimal disclosure level d* < 1.
PLAIN ENGLISH
The fiscal capture threshold is not a fixed number but depends on industry characteristics like cost structure and social harm. Conflictoring—where both regulator and firm prefer less transparency—is a natural outcome when the regulator cares about revenue.
EVIDENCE & LIMITATIONS
- Theorem status: evidence-traced claim under the cited paper's assumptions
- Falsification: show the same game preserving system welfare without changing the payoff structure
REFERENCES / CITATION STATUS
References section
Detected
Bibliography entries
104
In-text citations
29
Unique citations
74
Footnote markers
0
Citation year span
1938-2026
Source hash
3cbd742092f7
This page reports reference counts measured directly from the manuscript. Full reference entries render only when a curated source chapter carries a public References, Bibliography, Source Notes, Supplemental Reference Archive, Footnotes, or Source-Grounding Ledger section. The site does not synthesize citation entries. Literature-claim verification status: not evaluated.
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EXECUTIVE SUMMARY
The paper addresses a key objection to the Fiscal Capture Theorem: that the threshold φ* is posited rather than derived. By embedding the regulator's revenue dependence into a Laffont-Tirole model, the paper shows that φ* emerges as a function of the firm's cost structure, efficiency type probabilities, and effort disutility. Conflictoring—the joint preference for under-disclosure—is derived as an equilibrium property of the same model. The paper provides three propositions, comparative statics, and falsification conditions. It contributes microfoundations to the canon, showing that the Hollow Win is a structural property of regulatory systems with fiscal dependence.
METHODOLOGY
The paper uses a principal-agent model in the Laffont-Tirole tradition. The regulator designs a menu of contracts for a firm with private efficiency information. The regulator's objective includes social welfare and fiscal revenue. The model solves for optimal output and disclosure, deriving thresholds and comparative statics analytically.
SOURCE QUESTIONS
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WHY THIS MATTERS
For the economist
A structural claim about when bilateral optimization degrades the shared system. Read the formal statement and its stated axioms.
For the regulator
The constraint is physical or biological, so disclosure alone will not internalize it. The policy lever is to bound exposure, not to price it away.
For the executive
This is where a privately efficient decision can degrade the system the business depends on. The governance question is which decision records would make that system cost visible before it is normalized.
For the teacher
An on-site HTML deck and the expanded curriculum cover the argument, the evidence, and the measurement. Use the deck as a self-contained class session, then route deeper through the 45-50h core course or 100+h full curriculum.
For the affected community
In plain terms: who gains from the current arrangement, who pays for it, and what rule change would alter that split. The summary states each without jargon.
© 2026 Erik Postnieks · Independent Researcher · Salt Lake City