Attackers' private information is one of the main issues in defensive resource allocation games in homeland security. The outcome of a defense resource allocation decision critically depends on the accuracy of estimations about the attacker's attributes. However, terrorists' goals may be unknown to the defender, necessitating robust decisions by the defender. This article develops a robust-optimization game-theoretical model for identifying optimal defense resource allocation strategies for a rational defender facing a strategic attacker while the attacker's valuation of targets, being the most critical attribute of the attacker, is unknown but belongs to bounded distribution-free intervals. To our best knowledge, no previous research has applied robust optimization in homeland security resource allocation when uncertainty is defined in bounded distribution-free intervals. The key features of our model include (1) modeling uncertainty in attackers' attributes, where uncertainty is characterized by bounded intervals; (2) finding the robust-optimization equilibrium for the defender using concepts dealing with budget of uncertainty and price of robustness; and (3) applying the proposed model to real data.

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Despite the many benefits of outsourcing, firms are still concerned about the lack of critical information regarding both the risk levels and actions of their suppliers who are usually just a few links away. Usually, companies manage supply chain risks by deferring payments to suppliers until after the delivery has been made. Even though the deferred payment approach shunts the risk from the buyer to the supplier, recent supply chain failures suggest that it does not necessarily eliminate the risk completely. Hence, many companies offer incentives and conduct inspections of the actions taken at source rather than waiting for the end delivery. In this paper, we study the effectiveness of such incentive and inspection mechanisms undertaken by manufacturers to manage the quality of suppliers who are "privately" aware of the risk of failure. By comparing the agency costs associated with each contractual setting, we characterize the value of outputand action-based incentive mechanisms from the perspective of the manufacturer. We find that employing action-based incentives is effective for the manufacturer, specifically when working with a supplier that faces high costs of production and quality improvement. However, if the manufacturer faces high inspection costs or a low degree of information asymmetry, employing an output-based contract that results in differentiated quality improvement efforts becomes more effective. Finally, we analyze the marginal value of the combined contracting strategy and characterize when it strictly dominates over output-and effort-based contracts.

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The ability to understand and predict the sequence of events leading to a terrorist attack is one of the main issues in developing preemptive defense strategies for homeland security. This article, explores the value of terrorist's private information on a government's defense allocation decision. In particular, two settings with different informational structures are considered. In the first setting, the government knows the terrorist's target preference but does not know whether the terrorist is fully rational in his target selection decision. In the second setting, the government knows the degree of rationality of the terrorist but does not know the terrorist's target preference. The government's equilibrium budget allocation strategy for each setting is fully characterized and it is shown that the government makes resource allocation decisions by comparing her valuation for each target with a set of thresholds. The Value Of Information (VOI) from the perspective of the government for each setting is derived. The obtained results show that VOI mainly depends on the government's budget and the degree of heterogeneity among the targets. In general, VOI goes to zero when the government's budget is high enough. However, the impact of heterogeneity among the targets on VOI further depends on whether the terrorist's target preference matches those of the government's or not. Finally, various extensions on the baseline model are performed and it is shown that the structural properties of budget allocation equilibrium still hold true.