Nitin Bakshi

Co-opetition and Investment for Supply-Chain Resilience

This paper considers the problem of disruption risk management in global supply chains. We consider a supply chain with two participants, who face interdependent losses resulting from supply chain disruptions such as terrorist strikes and natural hazards. The Harsanyi–Selten–Nash bargaining framework is used to model the supply chain participants’ choice of risk mitigation investments. The bargaining approach allows a framing of both joint financing of mitigation activities before the fact and loss-sharing net of insurance payouts after the fact. The disagreement outcome in the bargaining game is assumed to be the result of the corresponding noncooperative game. We describe an incentive-compatible contract that leads to First Best investment and equal ‘‘gain’’ for all players, when the solution is ‘‘interior’’ (as it almost certainly is in practice). A supplier that has superior security practices (i.e., is inherently safer) exploits its informational advantage by extracting an ‘‘information rent’’ in the usual spirit of incomplete information games. We also identify a special case of this contract, which is robust to moral hazard. The role of auditing in reinforcing investment incentives is also examined.

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

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 CBPs 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.

Estimating the Operational Impact of Container Inspections at International Ports

A U.S. law mandating nonintrusive imaging and radiation detection for 100% of U.S.-bound containers at international ports has provoked widespread concern that the resulting congestion would hinder trade significantly. Using detailed data on container movements, gathered from two large international terminals, we simulate the impact of the two most important inspection policies that are being considered. We find that the current inspection regime being advanced by the U.S. Department of Homeland Security can only handle a small percentage of the total load. An alternate inspection protocol that emphasizes screening---a rapid primary scan of all containers, followed by a more careful secondary scan of only a few containers that fail the primary test---holds promise as a feasible solution for meeting the 100% scanning requirement. This paper was accepted by Yossi Aviv, operations management.

Signaling New Product Reliability with After-Sales Service Contracts

Prior studies on performance-based contracting PBC for after-sales services have highlighted its advantages over traditional resource-based contracting RBC, when products are established and their reliability is known to all parties. We develop a game theoretic model to investigate how these insights are affected when the vendor is privately informed about the reliability of a newly developed product. A novel feature of our model is the interaction between reliability signaling private information and the vendors discretionary investment in spares inventory private action, which arises naturally in the setting we consider. We find that this interaction leads to contrasting equilibrium outcomes under the two contracts: RBC induces the vendor to focus on inventory savings, leading to underinvestment in spares, whereas PBC induces the vendor to focus on reliability signaling, achieved through overinvestment in inventory. As a result, neither contract is efficient. We investigate two means to mitigate this inefficiency, but either approach has caveats: a making inventory verifiable removes the trade-off between reliability signaling and inventory investment, but results in diverging contract preferences between the vendor and the buyer; b pooling inventories across multiple buyers saves inventory costs but it also hinders reliability signaling, potentially exacerbating inefficiency. This paper was accepted by Yossi Aviv, operations management.

Online Appendix to Cancelability in Trade Credit Insurance

This is the online appendix to Calculability in Trade Credit Insurance.Full paper available at: http://ssrn.com/abstract=2735907.