Discussion paper
DP20819 Supply Chain Resilience, Interference and Competition with Geopolitical Tensions
We characterize investments in supply chain resilience in a geopolitical duopoly. The domestic firm balances the option to benefit from potential competitive advantages against riskiness and geopolitical instability associated with foreign sourcing. We show that the domestic firm has insufficient incentives to invest in supply chain resilience, thereby justifying a subsidy policy. We characterize conditions for underinvestment. We also characterize a number of factors which are central for optimal subsidy policy.
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Citation
Gehrig, T and R Stenbacka (2025), ‘DP20819 Supply Chain Resilience, Interference and Competition with Geopolitical Tensions‘, CEPR Discussion Paper No. 20819. CEPR Press, Paris & London. https://cepr.org/publications/dp20819