[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/eee/ejores/v225y2013i2p363-376.html
   My bibliography  Save this article

The impact of disaster on the strategic interaction between company and government

Author

Listed:
  • Hausken, Kjell
  • Zhuang, Jun
Abstract
A company allocates a resource between safety effort and production. The government earns taxes on production. The disaster probability is modeled as a contest between the disaster magnitude and the two players’ safety efforts. The model illustrates that safety efforts are strategic substitutes and inverse U shaped in the disaster magnitude. The company’s safety effort increases, and the government’s safety effort decreases, in taxation. Taxation can ameliorate companies’ free riding on governments’ safety efforts. With sufficiently large production, the government prefers, and the company does not prefer, raising taxation above 0%. For the government, an upper limit usually exists above which taxation cannot be profitably increased. The model shows how both or no players exert safety efforts when the disaster magnitude is small and large respectively, and how they free ride on each other’s safety efforts when the disaster magnitude is intermediate. The company free rides when the unit production cost is low so that the large profits outweigh the negative impact of the disaster. With endogenized taxation determined by the government, the tax rate decreases in the disaster magnitude, the unit production cost, the government’s unit cost of safety effort, and how the company is negatively affected by the disaster. The tax rate increases in the company’s resource and how the government is negatively affected by the disaster. The tax rate is weakly U shaped in the company’s unit safety effort. The model is illustrated with numerical examples and with the oil spill disasters by BP in 2010 and by Exxon Valdez in 1989.

Suggested Citation

  • Hausken, Kjell & Zhuang, Jun, 2013. "The impact of disaster on the strategic interaction between company and government," European Journal of Operational Research, Elsevier, vol. 225(2), pages 363-376.
    • Handle: RePEc:eee:ejores:v:225:y:2013:i:2:p:363-376
    DOI: 10.1016/j.ejor.2012.09.047
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0377221712007266
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ejor.2012.09.047?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Golbe, Devra L, 1986. "Safety and Profits in the Airline Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 34(3), pages 305-318, March.
    2. Hausken, Kjell, 2008. "Strategic defense and attack for series and parallel reliability systems," European Journal of Operational Research, Elsevier, vol. 186(2), pages 856-881, April.
    3. Skiba, A K, 1978. "Optimal Growth with a Convex-Concave Production Function," Econometrica, Econometric Society, vol. 46(3), pages 527-539, May.
    4. Azaiez, M.N. & Bier, Vicki M., 2007. "Optimal resource allocation for security in reliability systems," European Journal of Operational Research, Elsevier, vol. 181(2), pages 773-786, September.
    5. Kjell Hausken, 2005. "Production and Conflict Models Versus Rent-Seeking Models," Public Choice, Springer, vol. 123(1), pages 59-93, April.
    6. Hirshleifer, Jack, 1995. "Anarchy and Its Breakdown," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 26-52, February.
    7. Kjell Hausken & Jun Zhuang, 2011. "Defending Against a Stockpiling Terrorist," The Engineering Economist, Taylor & Francis Journals, vol. 56(4), pages 321-353.
    8. Stergios Skaperdas, 1996. "Contest success functions (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(2), pages 283-290.
    9. Jun Zhuang & Vicki M. Bier, 2007. "Balancing Terrorism and Natural Disasters---Defensive Strategy with Endogenous Attacker Effort," Operations Research, INFORMS, vol. 55(5), pages 976-991, October.
    10. Efraim Sadka, 2007. "Public-Private Partnerships: A Public Economics Perspective," CESifo Economic Studies, CESifo Group, vol. 53(3), pages 466-490, September.
    11. Hausken, Kjell, 2008. "Strategic defense and attack for reliability systems," Reliability Engineering and System Safety, Elsevier, vol. 93(11), pages 1740-1750.
    12. Hausken, Kjell, 2006. "Income, interdependence, and substitution effects affecting incentives for security investment," Journal of Accounting and Public Policy, Elsevier, vol. 25(6), pages 629-665.
    13. Zhuang, Jun & Bier, Vicki M. & Alagoz, Oguzhan, 2010. "Modeling secrecy and deception in a multiple-period attacker-defender signaling game," European Journal of Operational Research, Elsevier, vol. 203(2), pages 409-418, June.
    14. Jack Hirshleifer, 1989. "Conflict and rent-seeking success functions: Ratio vs. difference models of relative success," Springer Books, in: Roger D. Congleton & Arye L. Hillman & Kai A. Konrad (ed.), 40 Years of Research on Rent Seeking 1, pages 251-262, Springer.
    15. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
    16. Carmichael, H Lorne, 1986. "Reputations for Safety: Market Performance and Policy Remedies," Journal of Labor Economics, University of Chicago Press, vol. 4(4), pages 458-472, October.
    17. Kunreuther, Howard & Heal, Geoffrey, 2003. "Interdependent Security," Journal of Risk and Uncertainty, Springer, vol. 26(2-3), pages 231-249, March-May.
    18. Marcel Boyer & Jean-Jacques Laffont, 1999. "Toward a Political Theory of the Emergence of Environmental Incentive Regulation," RAND Journal of Economics, The RAND Corporation, vol. 30(1), pages 137-157, Spring.
    19. May Cheung & Jun Zhuang, 2012. "Regulation Games Between Government and Competing Companies: Oil Spills and Other Disasters," Decision Analysis, INFORMS, vol. 9(2), pages 156-164, June.
    20. Wang, Xiaofang & Zhuang, Jun, 2011. "Balancing congestion and security in the presence of strategic applicants with private information," European Journal of Operational Research, Elsevier, vol. 212(1), pages 100-111, July.
    21. Osmundsen, Petter & Aven, Terje & Tomasgard, Asgeir, 2010. "On incentives for assurance of petroleum supply," Reliability Engineering and System Safety, Elsevier, vol. 95(2), pages 143-148.
    22. Kjell Hausken & Jun Zhuang, 2011. "Governments' and Terrorists' Defense and Attack in a T -Period Game," Decision Analysis, INFORMS, vol. 8(1), pages 46-70, March.
    23. repec:bla:kyklos:v:41:y:1988:i:3:p:379-95 is not listed on IDEAS
    24. Kjell Hausken & Vicki M. Bier & Jun Zhuang, 2009. "Defending Against Terrorism, Natural Disaster, and All Hazards," International Series in Operations Research & Management Science, in: Vicki M. M. Bier & M. Naceur Azaiez (ed.), Game Theoretic Risk Analysis of Security Threats, chapter 4, pages 65-97, Springer.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kjell Hausken & Jun Zhuang, 2016. "The strategic interaction between a company and the government surrounding disasters," Annals of Operations Research, Springer, vol. 237(1), pages 27-40, February.
    2. Chunlin Xin & Jianwen Zhang & Chia-Huei Wu & Sang-Bing Tsai, 2020. "Safety Investment Decision Problem without Probability Distribution: A Robust Optimization Approach," Mathematical Problems in Engineering, Hindawi, vol. 2020, pages 1-10, November.
    3. Cameron MacKenzie & Hiba Baroud & Kash Barker, 2016. "Static and dynamic resource allocation models for recovery of interdependent systems: application to the Deepwater Horizon oil spill," Annals of Operations Research, Springer, vol. 236(1), pages 103-129, January.
    4. Peiqiu Guan & Meilin He & Jun Zhuang & Stephen C. Hora, 2017. "Modeling a Multitarget Attacker–Defender Game with Budget Constraints," Decision Analysis, INFORMS, vol. 14(2), pages 87-107, June.
    5. Kjell Hausken & Jun Zhuang, 2016. "How companies and governments react to disasters," Journal of Risk and Reliability, , vol. 230(4), pages 417-426, August.
    6. Talarico, Luca & Reniers, Genserik & Sörensen, Kenneth & Springael, Johan, 2015. "MISTRAL: A game-theoretical model to allocate security measures in a multi-modal chemical transportation network with adaptive adversaries," Reliability Engineering and System Safety, Elsevier, vol. 138(C), pages 105-114.
    7. Daniel Seaberg & Laura Devine & Jun Zhuang, 2017. "A review of game theory applications in natural disaster management research," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 89(3), pages 1461-1483, December.
    8. Vicki M. Bier & Yuqun Zhou & Hongru Du, 2020. "Game-theoretic modeling of pre-disaster relocation," The Engineering Economist, Taylor & Francis Journals, vol. 65(2), pages 89-113, April.
    9. Mathews, Timothy & Paul, Jomon A., 2022. "Natural disasters and their impact on cooperation against a common enemy," European Journal of Operational Research, Elsevier, vol. 303(3), pages 1417-1428.
    10. Liangdong Lu & Hong Huang & Jiuchang Wei & Jia Xu, 2020. "Safety Regulations and the Uncertainty of Work‐Related Road Accident Loss: The Triple Identity of Chinese Local Governments Under Principal–Agent Framework," Risk Analysis, John Wiley & Sons, vol. 40(6), pages 1168-1182, June.
    11. Yisha Xiang & Jun Zhuang, 2016. "A medical resource allocation model for serving emergency victims with deteriorating health conditions," Annals of Operations Research, Springer, vol. 236(1), pages 177-196, January.
    12. Shan, Xiaojun & Zhuang, Jun, 2013. "Hybrid defensive resource allocations in the face of partially strategic attackers in a sequential defender–attacker game," European Journal of Operational Research, Elsevier, vol. 228(1), pages 262-272.
    13. Cameron A. MacKenzie & Hiba Baroud & Kash Barker, 2016. "Static and dynamic resource allocation models for recovery of interdependent systems: application to the Deepwater Horizon oil spill," Annals of Operations Research, Springer, vol. 236(1), pages 103-129, January.
    14. Konrad, Renata A. & Trapp, Andrew C. & Palmbach, Timothy M. & Blom, Jeffrey S., 2017. "Overcoming human trafficking via operations research and analytics: Opportunities for methods, models, and applications," European Journal of Operational Research, Elsevier, vol. 259(2), pages 733-745.
    15. Sushil Gupta & Martin K. Starr & Reza Zanjirani Farahani & Niki Matinrad, 2016. "Disaster Management from a POM Perspective: Mapping a New Domain," Production and Operations Management, Production and Operations Management Society, vol. 25(10), pages 1611-1637, October.
    16. Shitao Gong & Xin Gao & Zhou Li & Linyan Chen, 2021. "Developing a Dynamic Supervision Mechanism to Improve Construction Safety Investment Supervision Efficiency in China: Theoretical Simulation of Evolutionary Game Process," IJERPH, MDPI, vol. 18(7), pages 1-29, March.
    17. Aniruddha Bagchi & Tridib Bandyopadhyay, 2018. "Role of Intelligence Inputs in Defending Against Cyber Warfare and Cyberterrorism," Decision Analysis, INFORMS, vol. 15(3), pages 174-193, September.
    18. Wenxin Su & Xin Gao & Yukun Jiang & Jinrong Li, 2021. "Developing a Construction Safety Standard System to Enhance Safety Supervision Efficiency in China: A Theoretical Simulation of the Evolutionary Game Process," Sustainability, MDPI, vol. 13(23), pages 1-22, December.
    19. Simon, Jay & Omar, Ayman, 2020. "Cybersecurity investments in the supply chain: Coordination and a strategic attacker," European Journal of Operational Research, Elsevier, vol. 282(1), pages 161-171.
    20. Liu, Yang & Cui, Na & Zhang, Jianghua, 2019. "Integrated temporary facility location and casualty allocation planning for post-disaster humanitarian medical service," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 128(C), pages 1-16.
    21. Zongjie Pi & Xin Gao & Linyan Chen & Jinghua Liu, 2019. "The New Path to Improve Construction Safety Performance in China: An Evolutionary Game Theoretic Approach," IJERPH, MDPI, vol. 16(13), pages 1-24, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kjell Hausken & Jun Zhuang, 2016. "The strategic interaction between a company and the government surrounding disasters," Annals of Operations Research, Springer, vol. 237(1), pages 27-40, February.
    2. Kjell Hausken & Jun Zhuang, 2016. "How companies and governments react to disasters," Journal of Risk and Reliability, , vol. 230(4), pages 417-426, August.
    3. Hausken, Kjell, 2024. "Fifty Years of Operations Research in Defense," European Journal of Operational Research, Elsevier, vol. 318(2), pages 355-368.
    4. Hausken, Kjell, 2017. "Defense and attack for interdependent systems," European Journal of Operational Research, Elsevier, vol. 256(2), pages 582-591.
    5. Levitin, Gregory & Hausken, Kjell, 2009. "False targets efficiency in defense strategy," European Journal of Operational Research, Elsevier, vol. 194(1), pages 155-162, April.
    6. Levitin, Gregory & Hausken, Kjell, 2008. "Protection vs. redundancy in homogeneous parallel systems," Reliability Engineering and System Safety, Elsevier, vol. 93(10), pages 1444-1451.
    7. Kjell Hausken & Gregory Levitin, 2008. "Efficiency of Even Separation of Parallel Elements with Variable Contest Intensity," Risk Analysis, John Wiley & Sons, vol. 28(5), pages 1477-1486, October.
    8. Ye, Zhi-Sheng & Peng, Rui & Wang, Wenbin, 2017. "Defense and attack of performance-sharing common bus systemsAuthor-Name: Zhai, Qingqing," European Journal of Operational Research, Elsevier, vol. 256(3), pages 962-975.
    9. Levitin, Gregory & Hausken, Kjell, 2010. "Separation in homogeneous systems with independent identical elements," European Journal of Operational Research, Elsevier, vol. 203(3), pages 625-634, June.
    10. Levitin, Gregory & Hausken, Kjell, 2009. "Meeting a demand vs. enhancing protections in homogeneous parallel systems," Reliability Engineering and System Safety, Elsevier, vol. 94(11), pages 1711-1717.
    11. Kjell Hausken & Jun Zhuang, 2011. "Governments' and Terrorists' Defense and Attack in a T -Period Game," Decision Analysis, INFORMS, vol. 8(1), pages 46-70, March.
    12. Peiqiu Guan & Jun Zhuang, 2016. "Modeling Resources Allocation in Attacker‐Defender Games with “Warm Up” CSF," Risk Analysis, John Wiley & Sons, vol. 36(4), pages 776-791, April.
    13. Hunt, Kyle & Agarwal, Puneet & Zhuang, Jun, 2022. "On the adoption of new technology to enhance counterterrorism measures: An attacker–defender game with risk preferences," Reliability Engineering and System Safety, Elsevier, vol. 218(PB).
    14. Levitin, Gregory & Hausken, Kjell, 2009. "Parallel systems under two sequential attacks," Reliability Engineering and System Safety, Elsevier, vol. 94(3), pages 763-772.
    15. Hausken, Kjell, 2008. "Strategic defense and attack for series and parallel reliability systems," European Journal of Operational Research, Elsevier, vol. 186(2), pages 856-881, April.
    16. Kjell Hausken, 2012. "Game Theoretic Analysis of Standby Systems," Chapters, in: Yair Holtzman (ed.), Advanced Topics in Applied Operations Management, IntechOpen.
    17. Hunt, Kyle & Zhuang, Jun, 2024. "A review of attacker-defender games: Current state and paths forward," European Journal of Operational Research, Elsevier, vol. 313(2), pages 401-417.
    18. Hausken, Kjell, 2010. "Defense and attack of complex and dependent systems," Reliability Engineering and System Safety, Elsevier, vol. 95(1), pages 29-42.
    19. Hausken, Kjell, 2008. "Strategic defense and attack for reliability systems," Reliability Engineering and System Safety, Elsevier, vol. 93(11), pages 1740-1750.
    20. Kjell Hausken & Vicki M. Bier & Jun Zhuang, 2009. "Defending Against Terrorism, Natural Disaster, and All Hazards," International Series in Operations Research & Management Science, in: Vicki M. M. Bier & M. Naceur Azaiez (ed.), Game Theoretic Risk Analysis of Security Threats, chapter 4, pages 65-97, Springer.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:225:y:2013:i:2:p:363-376. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eor .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.