The Intertemporal Game of Instrumental vs. Humanistic Rationality: Hyperbolic Discounting, Latent Factor Costs, and Institutional Fragility

Empirical Evidence from Exogenous Supply Chain Compliance Audit Shocks

Abstract

During rapid catch-up growth phases, emerging economies are frequently dominated by instrumental rationality targeting scale efficiency and rapid delivery. This operational paradigm relies heavily on substantial discounting of long-term implicit costs. Relaxing the neoclassical assumption of homogeneous inputs across labor, environment, and capital maintenance, this paper integrates hyperbolic discounting theory with Amartya Sen’s humanistic capability framework to formulate an intertemporal dynamic optimization model. The theoretical results show that under quasi-hyperbolic discounting (-), micro-enterprises and local governance agents exhibit a systematic present-bias deviation. Decision-makers tend to externalize the life-cycle depletion of labor, deep asset maintenance, and exploratory R&D from current income statements, generating inflated short-term accounting returns at the expense of an escalating "humanistic capital deficit." Exploiting the implementation of the EU Corporate Sustainability Due Diligence Directive (CSDDD) and the German Supply Chain Due Diligence Act (LkSG) as a quasi-natural experiment, we employ a staggered triple-difference (DDD) specification on a micro-panel of Chinese manufacturers from 2015 to 2025. The empirical findings reveal that firms suffering from excessive instrumental rationality and severe hyperbolic discounting experience significant contract cancellations and sharp declines in total factor productivity (TFP) when subjected to non-tariff compliance audits. Conversely, firms with internalized humanistic investments and contractual commitment display substantial resilience. This study delineates the institutional fragility frontiers inherent in pure scale-driven factor depletion and offers empirical insights for transitioning from passive cost adaptation to indigenous soft-power cultivation.