Working Paper No. 01
The AI capability trade-off model
After Katherine’s reduced-form modelDraft of 31 July 2026Priors unvalidated
Abstract
A policy reallocates a share x of frontier AI R&D compute from capability research to alignment. This paper specifies the reduced-form model that carries that reallocation through to two observable quantities, and records exactly how much of the specification the shipped calculator evaluates.
The reallocation enters an ideas-production function for software progress, propagates into a Cobb–Douglas capability index that holds training compute equal across arms, and drives an exponential reduction channel for AI risk. A capability cost and a safety benefit follow.1 Every quantity the calculator plots is a comparison between a baseline arm and a policy arm of the same normalized run: a statement about divergence, never a dated forecast of absolute capability.
The parameter bundles are sensitivity cases drawn from assumed priors. They are not empirical estimates, they are not joint outcome percentiles, and they are not a forecast. § 9 says so at length, because for this audience an honest account of what the model cannot support is the only thing that makes the rest of it usable.
Keywords compute governance · alignment investment · reduced-form modelling · sensitivity analysis
| Channel | Mechanism | Primary output |
|---|---|---|
| Capability | R&D compute to software progress to frontier capability | Capability cost |
| Safety | Alignment compute to lower AI risk | Safety benefit |
| Symbol | Role in the model | Value in this build | Status |
|---|---|---|---|
| A | Research productivity in the ideas-production function | Absorbed by the baseline normalization | Never evaluated numerically |
| β | Elasticity of software progress to capability R&D compute | Triangular(0.15, 0.30, 0.50) | Working prior, from the specification |
| γ | Software feedback — knowledge and AI-assisted R&D | Triangular(0.20, 0.40, 0.60) | Working prior, from the specification |
| α | Training-compute elasticity in the capability index | Cancels from every relative output | Never evaluated numerically |
| δ | Software-to-capability elasticity | Triangular(0.50, 0.70, 0.90) | Working prior, from the specification |
| λ | Alignment effectiveness in the risk channel | Triangular(0.20, 0.40, 0.60) | Working prior chosen here; the source supplies none |
Compute reallocation
Let CR(t) be total frontier AI R&D compute and x the share of it reallocated to alignment, with 0 ≤ x ≤ 0.5 over the range the calculator exposes. Total R&D compute is exogenous and is held at its initial level across the modelled horizon.
Under the baseline nothing is reallocated, so the whole budget stays with capability work.
Under the policy the capability-directed budget falls by exactly the reallocated fraction.
The calculator implements all three. The policy enters every equation below through (1.3) alone: reallocation changes the compute available to capability research, and nothing else.2
Software progress
Let S(t) denote the software — that is, algorithmic — progress index. Software progress follows an ideas-production function, run once for the baseline and once for the policy.
Both arms start from the same initial condition.
| A | Research productivity. |
|---|---|
| β | Elasticity of software progress with respect to capability R&D compute. |
| γ | Software feedback — knowledge accumulation and AI-assisted R&D. |
The policy enters through one factor. Comparing (2.2) with (2.1), reallocation multiplies the instantaneous rate by (1 − x)β and changes nothing else.
Frontier AI capability
Frontier AI capability is modelled with a reduced-form Cobb–Douglas production function over training compute and software.
| M(t) | Frontier AI capability index. |
|---|---|
| CT(t) | Frontier training compute. |
| α | Training-compute elasticity. |
| δ | Software elasticity. |
Since the policy reallocates only R&D compute, training compute is identical in both arms.
Capability cost is therefore the shortfall of the policy capability path against the baseline,
or equivalently, once the common training-compute term cancels,3
The cancellation in (3.4) is why α never needs a value. It is a real parameter of the model that the relative outputs happen to be insensitive to — not an omission.
AI risk
Rather than modelling alignment progress explicitly, AI risk is represented with a reduced-form function. Under the policy, risk decays away from its baseline path in proportion to the reallocated share and the time elapsed since the policy began.
| R(t) | AI risk index. |
|---|---|
| λz | Alignment effectiveness under policy impact level z. |
| t0 | Policy implementation year. |
The specification supplies no shape for RB(t) and no empirical bounds for λ.4 This implementation therefore holds baseline risk at a normalized index of 100 and draws λ from an explicit working prior, λ ∼ Triangular(0.20, 0.40, 0.60). The AI-risk plate is a sensitivity surface over that assumption, not a risk forecast.
Safety benefit
Safety benefit is defined as the proportional reduction in AI risk relative to the baseline.
Substituting the risk function (4.1), the baseline path divides out,5
Increasing x therefore increases safety benefit, and increasing λ makes alignment compute more effective. Both follow from (5.2) alone. Note what (5.2) means for the calculator: the baseline path divides out entirely, so the safety-benefit plate is independent of the assumed shape of RB(t) and depends only on λ, x and elapsed time. The normalization in § 4 constrains the risk plate; it does not constrain this one.
User inputs
The reader controls two inputs, and only two.
- Compute reallocation share The share x of frontier AI R&D compute reallocated to alignment. The calculator exposes it as a slider over 0 %–50 %.
- Policy impact level A categorical selection, z ∈ {Lower, Central, Higher}, which selects a parameter bundle.
The mapping in (6.1) carries four parameters, and the shipped bundles carry all four.6 β, γ and δ are drawn from the source’s own triangular ranges; λ is drawn the same way, but from a range this implementation chose, because the source supplies none.
Implementation record
Calibration of the bundles
The parameter bundles come from 10,000 × 4 seeded Monte Carlo draws on triangular distributions. Each parameter is drawn independently, sorted,7 and read at the marginal percentile its impact level names.
| z | β | γ | δ | λ |
|---|---|---|---|---|
| Low · P10 | 0.223 | 0.290 | 0.589 | 0.288 |
| Medium · P50 | 0.313 | 0.400 | 0.701 | 0.400 |
| High · P90 | 0.416 | 0.511 | 0.810 | 0.509 |
| Parameter | Minimum | Mode | Maximum |
|---|---|---|---|
| β | 0.15 | 0.30 | 0.50 |
| γ | 0.20 | 0.40 | 0.60 |
| δ | 0.50 | 0.70 | 0.90 |
| λ | 0.20 | 0.40 | 0.60 |
| Samples | 10,000 per parameter |
|---|---|
| Reproducibility | Seed 20260731 |
| Sampling | Independent draws |
| Quantiles | Linear at (n − 1)q |
The bundles rank-align each parameter’s marginal percentile. Seeding the draw makes the same z selection reproduce the same bundle on every run, which is what allows a reader to check a figure against the source.
Normalization and scope
Software begins at index 100. The baseline is normalized to index 200 in 2034, so the plates communicate policy divergence — not a dated forecast of absolute capability.9 The normalization absorbs A; unchanged training compute makes α cancel from relative outputs.
The horizon runs 2026–2034 at quarterly resolution. Because the normalization fixes the baseline endpoint, A and CR(t) never appear as numbers: the calculator solves (2.1) for the growth constant that reaches the fixed endpoint, then applies the policy factor (1 − x)β from (2.2) to obtain the policy arm.
Limitations and scope of inference
What follows is the shortest honest account of what this model cannot tell you. It is set here, in full, rather than in a disclaimer at the foot of the page, because a reader who takes the plates for estimates will draw conclusions the model does not support.
The bundles are sensitivity cases, not estimates
The triangular ranges in Table 4 are assumed priors chosen by the modelling team. No validated empirical calibration of β, γ, δ or λ exists. Table 3 is therefore a set of sensitivity cases: it answers “how much does the result move if the elasticities are toward the low end of what we assumed?” and nothing more. Read as estimates, the numbers claim a precision that has no evidence behind it.
The bundles are not joint outcome percentiles
Low, Medium and High rank-align each parameter’s marginal percentile. The Low bundle is the vector of P10 marginals, not the 10th percentile of any output distribution. Because the parameters are drawn independently and then composed, the joint probability of the Low bundle occurring is far below 10 %, and the interval between Low and High is not an 80 % credible interval for any plotted quantity.
Nothing here is a forecast
The horizon 2026–2034 is a modelling window, not a prediction schedule. Absolute levels are normalized away by construction (§ 8), so a value on any plate is a ratio between two arms of the same run at the same instant. “Capability is 4 % lower in 2031” is a statement about the model’s two arms; it is not a claim about 2031.
The risk channel rests on a supplied baseline
The source specifies no shape for RB(t). Holding it constant at index 100 is this implementation’s choice, and it is the weakest link in the document. The risk plate should be read as a relative sensitivity path only. The safety-benefit plate is exempt: (5.2) divides the baseline out, so it survives the assumption intact.
Structural omissions
The model has no diffusion or spillover between firms, no lag between alignment spend and alignment effect, no adversarial response to a unilateral commitment, and no cost to coordination itself. Each of those would, in the direction economic intuition suggests, reduce the measured safety benefit of a unilateral policy relative to a coordinated one. The model is silent on all of them, and silence is not a null result.
What the model is for
Within those limits the instrument answers one question well: for a given assumed elasticity bundle, how do the capability cost and the safety benefit of a reallocation trade off against one another over time, and which assumption is doing the work? That is a question about structure, and structure is what a reduced form is good for.
Parameter contract
Every symbol in the specification, its role, where its value comes from, and what the shipped model does with it. Every row is implemented; the one still marked is RB(t), which the model supplies itself because the source does not.
Inspect the full parameter contract
| Symbol | Role | Source status | Implementation |
|---|---|---|---|
| x | R&D compute reallocation share | User input | 0 %–50 % slider |
| z | Policy impact level | User input | Marginal P10 / P50 / P90 bundle |
| CR | Total frontier R&D compute | Exogenous path | Held constant at CR,0 |
| CR,0 | Initial R&D compute level | Fixed normalization | Absorbed with A; never a number |
| CBR | Baseline capability-directed R&D compute | Model-derived | CR, unchanged |
| CPR(t; x) | Policy capability-directed R&D compute | Model-derived | (1 − x)CR |
| x CR | Alignment compute the policy buys | Model-derived | Not carried as a quantity; enters risk through x |
| A | Research productivity | Set by z / calibrated | Absorbed into baseline normalization |
| β | R&D-compute elasticity | Set by z / calibrated | 10k triangular-draw quantile |
| γ | Software-feedback elasticity | Set by z / calibrated | 10k triangular-draw quantile |
| SB(t) | Baseline software level | Model-generated | Baseline software series |
| SP(t; x, z) | Policy software level | Model-generated | Firm policy series |
| S0 | Initial software level | Fixed normalization | Index 100 |
| CT | Frontier training compute | Exogenous path | Equal across scenarios |
| α | Training-compute elasticity | Set by z / calibrated | Cancels from relative outputs |
| δ | Software-to-capability elasticity | Set by z / calibrated | 10k triangular-draw quantile |
| MB(t) | Baseline capability level | Model-generated | Baseline capability series |
| MP(t; x, z) | Policy capability level | Model-generated | Firm policy series |
| M0 | Initial capability level | Fixed normalization | Index 100 |
| t | Time since policy start | Model index | 2026–2034, quarterly |
| λz | Alignment effectiveness | Set by z / working prior | 10k triangular-draw quantile |
| t0 | Policy implementation year | Exogenous | Start of the modelled horizon |
| RB(t) | Baseline AI risk index | Not supplied by the source | Held constant at index 100 |
| RP(t) | Policy AI risk index | Model-generated | Shown in the AI-risk plate |
| SB(t) | Safety benefit | Model output | Shown in the safety-benefit plate |
| SS | Software progress-rate slowdown | Model output | Shown in the software-slowdown plate |
| SG | Software level gap | Model output | Returned in the model contract |
| CG | Capability cost / gap, CC(t) | Model output | Shown in the capability-gap plate |
Return to the calculator — the instrument this document specifies.