Michael,
I'm not sure I understand what you mean with your above statement. For example, what do you mean by "Digitized color models further reduces color resolution." In a digital camera image, the low level signals are pretty linear, even after application of the variable gamma curve (the standard characteristic curve). What I see when lifting shadows is posterization. There is another issue with some raw converters that drop color in shadows. ACR was not great back in CS2 days:
http://www.clarkvision.com/articles/...shadow.detail/
I haven't updated that page in a while, but I have tried a more recent ACR with similarly poor results (think it was CS4, but maybe it was CS3).
Is any of this what your are referring to? If so, this ia purely processing algorithm problems and not anything inherent in the digital data.
Regarding loss of color in the high end, there is loss of color and tonality (posterization) due to the characteristic curve which compresses the data into a smaller range, losing fine tonality levels. If one needs to get more detail (color and/or tonality) in highlights, do a linear conversion (which photoshop's ACR will not do).
Roger