Supply Chain Resilience, Interference and Competition with Geopolitical Tensions

Thomas Gehrig and Rune Stenbacka

No 20819, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: 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.

JEL-codes: D43 F12 F61 L13 (search for similar items in EconPapers)
Date: 2025-11
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