Nuclear Accident, Liability Rules and a Regulated Monopoly
AbstractWe study the role of liability rules in the case of nuclear accidents by the Tokyo Electric Power Company (TEPCO), such as the accident after the East Kanto Earthquake in Japan. We re-examine the claim that the absolute or unlimited liability is the best under actual situations. For example, TEPCO is a vertically integrated monopoly power company in the Kanto region. We show that monopolist may produce more than socially optimal level of output and spend too little to prevent an accident with limited liability if cost of accident avoidance is variable cost. When there is under production by the monopoly, then increasing liability will aggravate monopoly distortion and reduce welfare. We show that welfare increases with size of liability when cost of accident avoidance is fixed cost. We also consider possibility of regulatory capture by TEPCO and implications.
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Bibliographic InfoPaper provided by Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University in its series CIS Discussion paper series with number 600.
Length: 21 p.
Date of creation: Mar 2013
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-20 (All new papers)
- NEP-ENE-2013-04-20 (Energy Economics)
- NEP-REG-2013-04-20 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, January.
- Hamada, Koichi, 1976. "Liability Rules and Income Distribution in Product Liability," American Economic Review, American Economic Association, vol. 66(1), pages 228-34, March.
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