Optimal Response to Shift in Regulatory Regime: the Case of the U.S. Nuclear Power Industry
AbstractThis paper studies the impact of the March 1979 Three Mile Island (TMI) accident on the regulation of nuclear power plants (NPPs) and its consequences for the operating behavior and profitability of the U.S. nuclear power industry. We treat the TMI accident as a ``natural experiment'' that caused a sudden, unexpected, and permanent increase in the intensity of safety regulation by the U.S. Nuclear Regulatory Commission (NRC) and a shift toward increased disallowances of operating costs by state and local public utility commissions (PUCs). We analyze the nuclear power industry's reaction to this shift in regulatory regime using detailed monthly data on NPP operations collected by the NRC. We find that the industry has been very responsive to NRC regulation insofar as they impute a significantly higher cost to ``imprudent'' operation of a reactor in the post-TMI period than in the pre-TMI period. We find that while NPPs appear safer in the post-TMI period (in terms of having a lower rate of forced outages), they are also substantially less profitable: over 90\% of the expected discounted profits from continued operation of existing NPPs have been eliminated in the post-TMI period. Interestingly, we find that the hypothesis of expected discounted profit maximization provides a much better approximation to NPP operating behavior in the post-TMI period than in the pre-TMI period.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by EconWPA in its series Industrial Organization with number 9508002.
Length: 47 pages
Date of creation: 16 Aug 1995
Date of revision:
Note: TeX file, Postscript version submitted, 47 pages
Contact details of provider:
Web page: http://18.104.22.168
Find related papers by JEL classification:
- L - Industrial Organization
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.:
- David, Paul A. & Rothwell, Geoffrey S., 1996. "Measuring standardization: An application to the American and French nuclear power industries," European Journal of Political Economy, Elsevier, vol. 12(2), pages 291-308, September.
- Dubin, Jeffrey A. & Rothwell, Geoffrey S., 1989. "Risk and reactor safety systems adoption," Journal of Econometrics, Elsevier, vol. 42(2), pages 201-218, October.
- Joskow, Paul L & Rozanski, George A, 1979.
"The Effects of Learning by Doing on Nuclear Plant Operating Reliability,"
The Review of Economics and Statistics,
MIT Press, vol. 61(2), pages 161-68, May.
- P. L. Joskow & G. A. Rozanski, 1977. "The Effects of Learning by Doing on Nuclear Plant Operating Reliability," Working papers 209, Massachusetts Institute of Technology (MIT), Department of Economics.
- Paul L. Joskow, 2006. "Incentive Regulation for Electricity Networks," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 4(2), pages 3-9, 07.
- Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
- Rothwell, Geoffrey, 1990. "Utilization and service : Decomposing nuclear reactor capacity factors," Resources and Energy, Elsevier, vol. 12(3), pages 215-229, September.
- Rothwell, Geoffrey, 1996. "Organizational Structure and Expected Output at Nuclear Power Plants," The Review of Economics and Statistics, MIT Press, vol. 78(3), pages 482-88, August.
- Sturm, Roland, 1995. "Why does nuclear power performance differ across Europe?," European Economic Review, Elsevier, vol. 39(6), pages 1197-1214, June.
- David, Paul A & Maude-Griffin, Roland & Rothwell, Geoffrey, 1996. "Learning by Accident? Reductions in the Risk of Unplanned Outages in U.S. Nuclear Power Plants after Three Mile Island," Journal of Risk and Uncertainty, Springer, vol. 13(2), pages 175-98, September.
- Geoffrey Rothwell & John Rust, 1995. "A Dynamic Programming Model of U.S. Nuclear Power Plant Operations," Microeconomics 9502001, EconWPA, revised 06 Feb 1995.
- El-Gamal, Mahmoud A. & Grether, David M., 1995. "Are People Bayesian? Uncovering Behavioral Strategies," Working Papers 919, California Institute of Technology, Division of the Humanities and Social Sciences.
- Victor Aguirregabiria & Arvind Magesan, 2013. "Euler Equations for the Estimation of Dynamic Discrete Choice Structural Models," Working Papers tecipa-489, University of Toronto, Department of Economics.
- Victor Aguirregabiria, 2007.
"Another Look at the Identification of Dynamic Discrete Decision Processes: With an Application to Retirement Behavior,"
tecipa-282, University of Toronto, Department of Economics.
- Victor Aguirregabiria, 2006. "Another Look at the Identification of Dynamic Discrete Decision Processes: With an Application to Retirement Behavior," 2006 Meeting Papers 169, Society for Economic Dynamics.
- Victor Aguirregabiria, 2005. "Another Look at the Identification of Dynamic Discrete Decision Processes," Econometrics 0504006, EconWPA.
- Pedro Mira & Victor Aguirregabiria, 2007.
"Dynamic Discrete Choice Structural Models: A Survey,"
- Aguirregabiria, Victor & Mira, Pedro, 2010. "Dynamic discrete choice structural models: A survey," Journal of Econometrics, Elsevier, vol. 156(1), pages 38-67, May.
- Victor Aguirregabiria & Pedro mira, 2007. "Dynamic Discrete Choice Structural Models: A Survey," Working Papers tecipa-297, University of Toronto, Department of Economics.
- Aguirregabiria, Victor & Magesan, Arvind, 2013. "Euler Equations for the Estimation of Dynamic Discrete Choice Structural," MPRA Paper 46056, University Library of Munich, Germany.
- Wendy Chapple & Andrew Cooke & Vaughan Galt & David Paton, 2001. "The determinants of voluntary investment decisions," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 22(8), pages 453-463.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.