Concentrating on the Worst Performers

H. W. Lewis

Risk Analysis, 1988, vol. 8, issue 3, 411-413

Abstract: There is a substantial variation in the quality of operators of nuclear power plants, and it is therefore widely believed that regulatory attention is best directed at the worst performers. What is not immediately apparent is a strategy for the optimal allocation of regulatory resources. We study a simple model for this problem, and find that, under reasonable assumptions, the optimal allocation does indeed behave as expected. The proper degree of unbalance, however, depends upon the effectiveness of regulation itself and on the variation among performers, ineffective regulation leading to more concentration on the bottom of the list and a net reduction in attention to the top. Not surprisingly, the optimal strategy is to press toward parity in risk, even if it means allowing some plants to become riskier. This strategy leads to a minimized net probability of accident anywhere.

Date: 1988
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https://doi.org/10.1111/j.1539-6924.1988.tb00505.x

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Persistent link: https://EconPapers.repec.org/RePEc:wly:riskan:v:8:y:1988:i:3:p:411-413

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