Cutting Corners or Saving Lives? The Evolutionary Stability of Ethics in Pharma Medicine

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.