Strategic Investment in Supply Chain Resilience under Geopolitical Interference: Theory and Policy Implications

Thomas Gehrig and Rune Stenbacka

No 21507, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We characterize strategic investments in supply chain resilience when facing endogenously generated supply disruptions by an adversarial foreign rival in a geopolitical duopoly. The resilience investment has a strategic deterrence effect on rival investments in disruption. However, the domestic firm has insufficient incentives to invest in supply chain resilience, thereby justifying a subsidy policy. We characterize the optimal subsidy policy and show that it depends on the effectiveness of the interference technology available to the rival in the autocratic country if this interference operates through the market channel but not if it operates through the cost channel.

Keywords: supply chain resilience; Strategic investment; Subsidy policies (search for similar items in EconPapers)
JEL-codes: D43 F12 F61 L13 (search for similar items in EconPapers)
Date: 2026-05
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