Curbing the Usage of Conflict Minerals: A Supply Network Perspective

An important source of funds for the conflict in Democratic Republic of the Congo (DRC) is the revenue from minerals mined in DRC. U.S. legislation requires manufacturers that use “conflict minerals” to learn and disclose their sources. In the mineral supply chain, the critical link between mines and manufacturers is smelters. We study equilibrium sourcing decisions that arise in such a three-tier supply network consisting of manufacturers, smelters, and mines. We find the equilibrium depends on the total demand of “compliance-prone” manufacturers, who would choose to be compliant if the prices of certified and non-certified metals were equal. The main implication of our equilibrium results is that imposing penalties on manufacturers goes only so far: If penalties induce enough manufacturers to become compliance-prone, certified metal will become so expensive that some compliance-prone manufacturers will not comply.