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

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. THE WHARTON RISK MANAGEMENT AND DECISION PROCESSES CENTEREstablished in 1984, the Wharton Risk Management and Decision Processes Center develops and promotes effective corporate and public policies for low-probability events with potentially catastrophic consequences through the integration of risk assessment, and risk perception with risk management strategies. Natural disasters, technological hazards, and national and international security issues (e.g., terrorism risk insurance markets, protection of critical infrastructure, global security) are among the extreme events that are the focus of the Center's research.The Risk Center's neutrality allows it to undertake large-scale projects in conjunction with other researchers and organizations in the public and private sectors. Building on the disciplines of economics, decision sciences, finance, insurance, marketing and psychology, the Center supports and undertakes field and experimental studies of risk and uncertainty to better understand how individuals and organizations make choices under conditions of risk and uncertainty. Risk Center research also investigates the effectiveness of strategies such as risk communication, information sharing, incentive systems, insurance, regulation and public-private collaborations at a national and international scale. From these findings, the Wharton Risk Center's research team -over 50 faculty, fellows and doctoral students -is able to design new approaches to enable individuals and organizations to make better decisions regarding risk under various regulatory and market conditions. The Center is also concerned with training leading decision makers. It actively engages multiple viewpoints, including top-level representatives from industry, government, international organizations, interest groups and academics through its research and policy publications, and through sponsored seminars, roundtables and forums.More information is available at http://opim.wharton.upenn.edu/risk. can efficiently shift some of...

Estimating the Operational Impact of Container Inspections at International Ports

“…Martonosi et al (2006) evaluates the feasibility of 100% container scanning at American ports. An analytical treatment of the container inspection policies followed at U.S.-domestic ports can be found in Bakshi and Gans (2010). A shortcoming of all of these studies is that they lack actual data on container movement at ports.…”

Container transportation as an interdependent security problem

“…The multi-agent nature of the problem leads to the use of a gametheoretic approach as part of a complex optimization problem. Bakshi and Gans (2010) also employ a game-theoretic framework in an economic analysis of the so-called Customs-Trade Partnership Against Terrorism (C-TPAT) program. The interested reader can find more references regarding the applications of game theory to security and counter-terrorism for example in Bier (2006).…”

Sea Container Terminals: New Technologies, OR Models, and Emerging Research Areas

“…If personnel and land considerations are negligible, then scanning 100% of all containers is cost effective for attacks with estimated costs greater than $10 billion. Similarly, Bakshi and Gans (2010) use game theory models to study container inspection policies at U.S. domestic ports. Furthermore, Bakshi et al (2011) perform a simulation study to compare two container inspection regimes, namely the container security initiative (CSI) and the secure freight initiative (SFI).…”