Black swans and supply chain strategic necessity

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Global supply chains have grown greatly in recent years. Terrorist events that disrupt such supply chains are very hard to assess but have been and are likely to take place occasionally. Given that such disruptions have potentials for creating enormous and difficult to assess economic losses, this paper presents a much-needed approach to assessing and mitigating terrorism related supply chain disruptions. We find that the losses related to indirect effects can be critical and orders of magnitude times larger than direct effects. Because of the tragedy of the commons and related market failures, industry association and/or government action is necessary especially for low probability but high impact events.