Sourcing from Conflict Regions: Policies to Improve Transparency in International Supply Chains

In this paper, we set up a theoretical model to study how unilateral policies aimed at improving transparency for consumers concerning the source of certain raw materials influence prices, illegal mining activities and welfare. The model distinguishes two regions in the world, North and South. Firms in the North import natural resources from the South to produce final consumption goods. In one of the countries, in the South, local groups attempt to access natural resources, which results in rent seeking conflicts with the government and illegal mining. We find that a unilateral embargo against the conflict country as well as certification of legal mines can reduce rent seeking and illegal mining with different welfare consequences in the countries involved.