Nuclear Accident, Liability Rules and a Regulated Monopoly
We 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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- Hamada, Koichi, 1976. "Liability Rules and Income Distribution in Product Liability," American Economic Review, American Economic Association, vol. 66(1), pages 228-34, March.
- 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, June.
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