Seaport adaptation and capacity investments under inter-port competition and climate-change uncertainty

Climate-related disasters are causing increasing damage to seaports, necessitating investment in climate-change adaptation to enhance resilience. In addition, seaports must invest in capacity to meet the growing maritime demand. Given that the two types of investments are interdependent, we develop a game-theoretic model to determine the strategic investments a seaport should make in adaptation and capacity, considering inter-port competition. We consider three cases: profit-maximizing seaports, welfare-maximizing seaports, and first-best outcome. We show that a seaport facing higher climate risk invests less in capacity but do not necessarily invests more in adaptation. In addition, a seaport invests more in capacity and adaptation when its competitor faces a growing climate risk. Interestingly, given a high climate risk, inter-port competition leads to underinvestment in both capacity and adaptation. Lastly, our case study reveals that the most detrimental scenario for a port arises when its competitor adapts to changing climate while it does not.