The inscription of cities on the World Heritage List is not merely a symbolic achievement; it can act as an “institutional shock” that tests the quality of urban governance. This study examines the cycle of “weak governance–human capital outflow” in Khorramabad, an intermediate city of approximately 414,000 inhabitants. The city’s Paleolithic Valley was inscribed on the World Heritage List in July 2025. Six months after inscription, chronic capacity gaps in strategic planning, intersectoral coordination, and sustainable resource provision became more visible. The study adopts a qualitative approach, employing thematic analysis (Braun & Clarke) combined with mechanism-based analysis. Data were collected through 14 semi-structured interviews with key stakeholders in urban management and cultural heritage, triangulated with official documents and field observations. From 387 initial codes, five main capacity-gap themes were extracted: strategic, institutional, human resources, financial–technological, and political–cultural. The findings indicate that the absence of a shared vision, institutional fragmentation, skilled labor migration, financial constraints, and managerial instability have generated a self-reinforcing cycle between urban governance and human capital, leading to environmental, social, economic, and heritage-related consequences. The results emphasize that, in the absence of institutional capacity and intersectoral coordination, World Heritage inscription may intensify governance challenges rather than promote sustainable development. The proposed conceptual model offers a framework for the simultaneous enhancement of human capital and urban governance quality.