Nuclear Accident, Liability Rules and a Regulated Monopoly

Reiko Aoki and Koichi Hamada

No 600, CIS Discussion paper series from Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University

Abstract: 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.

Pages: 21 pages
Date: 2013-03
New Economics Papers: this item is included in nep-ene and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:hit:cisdps:600

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