Supply Chain Infrastructure Co-investments: Locating A Balanced Growth Path

Abstract

Infrastructure investments are critical to support economic growth and sustain development. We consider a supply chain comprised of several firms operating under a common infrastructure and cooperating in infrastructure fund management and investment. We assume that the firms’ capital represents the supply chain infrastructure and that the firms’ goals are to choose employment and co-investment levels that maximize their long-run discounted profits. The problem is formulated as a differential game between the supply chain parties and the focus is on commitment Nash equilibria. Specifically, we derive the conditions under which a long-run path of balanced growth of infrastructure capital exists and determine the rate of growth. Furthermore, based on those results, we propose an efficient numerical algorithm for locating transient equilibrium co-investment trajectories that tend toward balanced growth of infrastructure capital and employment.