Optimal nuclear liability insurance
Alexis Louaas and
Pierre Picard ()
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Alexis Louaas: X-DEP-ECO - Département d'Économie de l'École Polytechnique - X - École polytechnique
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We analyze the insurance of nuclear liability risk, from theoretical and applied standpoints. Firstly, we characterize the optimal insurance scheme for a low-probability industrial accident, such as a nuclear catastrophe, in a model of collective risk-sharing. Using catastrophe bond data, we then evaluate the cost of capital sustaining such an insurance mechanism. Finally, we characterize the individual lotteries associated with the risk of a nuclear accident in France, and we estimate the optimal coverage. We conclude that the corporate liability limit currently in force is likely to be inferior to the socially optimal level.
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