Organizations under Large Uncertainty: An Analysis of the Fukushima Catastrophe

Masahiko Aoki and Geoffrey Rothwell

No 11-001, Discussion Papers from Stanford Institute for Economic Policy Research

Abstract: This paper analyzes the impacts of the March 11, 2011, earthquake and tsunami at the Fukushima nuclear power plant in Japan, which were amplified by a failure of coordination across the plant, corporate, industrial, and regulatory levels, resulting in a nuclear catastrophe comparable in cost to Chernobyl. It derives generic lessons for industrial structure and regulatory frame for the electric power industry by identifying the two shortcomings of a horizontal coordination mechanism: instability under large shocks and the lack of defense in depth.The suggested policy response is to harness the power of Òopen-interface-rule-based modularity by creating an independent nuclear safety commission and an independent system operator owning the transmission grid module in Japan. We propose a transitory price mechanism that can restrain price volatility while providing investment incentives.

Keywords: horizontal coordination; modularity; nuclear power; regional monopoly; electricity regulation; safety regulation; public ownership; independent system operator (search for similar items in EconPapers)
JEL-codes: L22 L43 L94 (search for similar items in EconPapers)
Date: 2011-01
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Citations: View citations in EconPapers (4)

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