Strategic Decision Making in Supply Chain Management and Bitcoin Mining

Abstract

In this thesis, we study two strategic decision-making problems. In the first part, we consider the incentives and contract design when a manufacturer can select, contract, and learn about its stockists. We model this relationship using a two-period principal-agent framework in which the manufacturer is the principal and the stockists are agents. We examine how competition among the stockists for future contracts and their career concerns on the level of future compensation influence the optimal contract. We show that competition incentivizes stockists to exert more effort, whereas career concerns have an opposite incentive, particularly when the manufacturer has dominant bargaining power. By analyzing the exploitation and exploration trade-off we show, for instance, that the manufacturer may explore less when there is more uncertainty about the stockist’s capability. By calibrating our model to unique contract and sales data from an Indian potato chips manufacturer, our counterfactual analysis shows that the competition raises (career concerns decrease) the stockists’ effort by more than 192% (77%) and the manufacturer’s value by over 6% (about 3%). In the second part of the thesis, we use address-level blockchain data to examine the supply behavior and participation decisions of Bitcoin miners. We begin by investigating the key factors that motivate miners to supply Bitcoin to the market. Treating Bitcoin as an exhaustible digital resource, we find that miners’ supply responds to their Bitcoin holdings and mining rewards, but not to price fluctuations, deviating from the predictions of the Hotelling rule commonly applied to traditional exhaustible resources. These results are robust across various miner samples, including solo miners, pool miners, and active miners who continually participate in the system. Furthermore, we show that miners’ participation decisions are highly sensitive to both fixed capital costs and ongoing operating expenses. Specifically, higher mining rig and electricity prices significantly reduce mining activity and increase the likelihood of exit. Our findings provide novel empirical insights into the economics of Bitcoin mining, contributing to a deeper understanding of the incentives and constraints that shape this decentralized and rapidly evolving ecosystem.