Optimal Investments in Mitigating Agroterrorism Risks

Abstract

This study provides a framework to value investments to mitigate possible agroterrorism occurrences in the food supply chain and to determine where these investments would reduce the most risk. This framework is applied to the milk industry, which is one sector of the food industry that could be at risk. Stochastic optimization method is used to determine the costs and risk premiums of alternative investments with real‐time tracking possibilities. The real options method along with a portfolio of options, also referred to as the “tomato garden” framework, is used to determine where and when alternative intervention strategies should be implemented to reduce the most risk.