Securing the Containerized Supply Chain Analysis of….pdfVIP

MANAGEMENT SCIENCE informs® Vol. 56, No. 2, February 2010, pp. 219–233 doi 10.1287/mnsc.1090.1105 issn 0025-1909 eissn 1526-5501 10 5602 0219 © 2010 INFORMS Securing the Containerized Supply Chain: Analysis of Government Incentives for Private Investment Nitin Bakshi London Business School, Regent’s Park, London NW1 4SA, United Kingdom, nbakshi@ Noah Gans The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104, gans@ 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 th