University of Wisconsin-Madison
This research focused on protection from terrorism using risk analysis and game theory. In particular, game-theoretic models were developed to evaluate how investments in security by some partners in the supply chain can affect the risks and returns faced by others. Stochastic optimization models were also used to evaluate the costs, risks, and returns associated with security investments. The results of our analysis revealed that there can be multiple equilibria for investment in security. This can prevent the socially optimum investment strategy from being reached, in the absence of some type of coordinating mechanism. Therefore, it might be beneficial to institute some type of coordinating mechanism to ensure that players invest when that is the social optimum. Examples of such mechanisms can include low-interest loans or contracts between supply-chain partners, voluntary standards by trade associations, or regulations. Empirical analysis also suggests that price discounts and perceived increases in the probability of a terrorist attack can provide better incentives for participants to invest in security than direct subsidization of security. A survey was also conducted of dairy manufacturers, to assess which defense/security measures are currently in place, and to understand dairy manufacturersâ€™ perceptions of and experience with intentional contamination.