Why rational actors sustain outcomes they publicly oppose
Abstract
This final article in the series applies game-theory analysis to the institutional dynamics examined in Parts I and II. Where the first article identified a structural contradiction in Canada’s charitable tax framework, and the second explained its persistence using the Unified Theory of Probabilistic Connections, this third instalment asks a narrower but decisive question: why do rational actors continue to behave in ways that sustain an outcome they often publicly criticise? Modelling donors, charities, regulators, and policymakers as strategic actors operating under asymmetric incentives and incomplete information, the analysis shows that the system converges on a stable equilibrium that no single participant explicitly chooses, yet none has sufficient incentive to disrupt unilaterally.
From Mechanism to Strategy
UTPC explains how institutional entanglement emerges.
Game theory explains why it stays put.
Once a system stabilises around a particular outcome, the relevant question is no longer moral or legal. It is strategic. What are the payoffs? Who bears risk? Who moves first? Who absorbs blame?
Game theory is particularly well suited to analysing situations where:
- Multiple actors interact repeatedly
Enforcement is probabilistic
Outcomes depend on expectations, not commands
- This system exhibits all three.
The Players
For analytical clarity, we reduce the system to four strategic players:
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Donors
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Charities
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Regulators (CRA and related bodies)
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Policymakers
Each player acts rationally relative to their constraints.
Player 1: Donors (Low Risk, High Expressive Payoff)
Strategy options
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Donate through registered charities
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Do not donate
Payoffs
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Moral or ideological satisfaction
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Tax deduction
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Minimal legal risk
Donors face almost no downside. Enforcement rarely targets individuals, and information asymmetry shields them from downstream consequences. From a game-theory perspective, donation is a dominant strategy as long as charities remain registered.
Player 2: Charities (Moderate Risk, High Dependency)
Strategy options
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Accept and forward funds
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Refuse or self-restrict
Payoffs
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Financial stability
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Mission continuity
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Reputational risk only if exposed
Charities operate under delayed and uncertain enforcement. As long as enforcement is complaint-driven, the rational strategy is continuation. Self-restriction imposes immediate costs, while risk remains speculative.
This creates a moral hazard: the cost of restraint is guaranteed, the cost of continuation is probabilistic.
Player 3: Regulators (High Risk, Low Reward)
Strategy options
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Proactive enforcement
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Reactive enforcement
Payoffs
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Political risk
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Legal challenges
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Resource constraints
For regulators, proactive enforcement carries asymmetric downside. It invites litigation, political backlash, and accusations of bias. Reactive enforcement, by contrast, allows regulators to claim neutrality and procedural fairness.
Game-theoretically, regulators face a loss-avoidance problem. The rational move is delay.
Player 4: Policymakers (Symbolic Authority, Limited Control)
Strategy options
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Issue policy statements
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Reform tax law
Payoffs
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Signalling alignment
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Avoiding political fallout
Reforming charitable tax law is politically costly and electorally risky. Issuing statements is cheap. As long as enforcement remains technically independent, policymakers can externalise responsibility.
This creates a cheap-talk equilibrium: statements substitute for structural change.
The Equilibrium: Stable, Undesired, Rational
When these strategies interact, the system converges on a Nash equilibrium:
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Donors continue donating
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Charities continue operating
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Regulators enforce selectively
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Policymakers signal without reform
No single player can improve their outcome by changing strategy alone.
Crucially, this equilibrium persists even if all players disapprove of the outcome.
This is not a coordination failure. It is a rational compliance failure.
Why Exposure Does Not Break the Game
Investigative journalism functions as a temporary shock.
It alters payoffs briefly:
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Raises reputational risk
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Triggers isolated enforcement
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Forces symbolic responses
But unless the underlying payoff matrix changes, the equilibrium reasserts itself.
From a game-theory perspective, exposure without structural reform merely resets expectations, it does not rewrite incentives.
Why Moral Appeals Fail
Moral arguments target preferences.
Game theory targets constraints.
As long as:
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Costs are asymmetric
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Enforcement is delayed
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Responsibility is diffused
Moral appeals do not change strategy.
This explains why repeated public outrage has little long-term effect. The game absorbs it.
How the Game Could Change
Game theory also tells us how equilibria shift.
Any of the following would alter the payoff matrix:
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Upstream enforcement triggers rather than complaint-based action
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Automatic suspension mechanisms tied to geographic or sanctions risk
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Personal liability adjustments for trustees
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Loss of tax deductibility prior to adjudication
Each increases the cost of continuation before exposure occurs.
Only then does restraint become a rational strategy.
UTPC and Game Theory Together
UTPC explains how the system forms.
Game theory explains why it stabilises.
Together, they show that the problem is not hypocrisy or bad faith, but predictable strategic behaviour inside a misaligned system.
Conclusion
Part I identified the contradiction.
Part II explained its emergence.
Part III explains its persistence.
Canada’s charitable tax framework does not fail because actors ignore the rules. It fails because the rules, incentives, and enforcement signals create a stable equilibrium that rewards inaction and penalises intervention.
Until that equilibrium changes, outcomes will remain the same, regardless of intent, exposure, or rhetoric.
Understanding the game is the first step toward changing it.
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