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

To mitigate the threat that terrorists smuggle weapons of mass destruction (WMD) into the US through maritime containers, the US 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 US 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 show that a properly run program can efficiently shift some of CBP’s security burden to private industry. These results also suggest that there exists the possibility for CBP to use strategic delay as an incentive for firms to join. Analysis of comparative statics show that, with increasing capacity, membership in C-TPAT systematically declines.