Securing the Containerized Supply Chain: Analysis of Government Incentives for Private Investment

Authors:
Nitin Bakshi;Noah Gans
Affiliations:
London Business School, Regent's Park, London NW1 4SA, United Kingdom;The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104
Venue:
Management Science
Year:
2010

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Abstract

To mitigate the threat that terrorists smuggle weapons of mass destruction into the United States through maritime containers, the U.S. Bureau of Customs and Border Protection (CBP) inspects containers upon entry to domestic ports. Inspection-driven congestion is costly, and CBP provides incentives to firms to improve security upstream in the supply chain, thereby reducing the inspection burden at U.S. ports. We perform an economic analysis of this incentive program, called Customs-Trade Partnership Against Terrorism (C-TPAT), modeling in a game-theoretic framework the strategic interaction between CBP, trading firms, and terrorists. Our equilibrium results highlight the possibility that a properly run program can efficiently shift some of CBP's security burden to private industry. These results also suggest that CBP may have the opportunity to use strategic delay as an incentive for firms to join. Analysis of comparative statics shows that, with increasing capacity, membership in C-TPAT systematically declines.