Optimal Response to Shift in Regulatory Regime: the Case of the U.S. Nuclear Power Industry

John Rust () and Geoffrey Rothwell

Industrial Organization from University Library of Munich, Germany

Abstract: This paper studies the impact of the March 1979 Three Mile Island (TMI) accident on the regulation of nuclear power plants (NPPs) and its consequences for the operating behavior and profitability of the U.S. nuclear power industry. We treat the TMI accident as a ``natural experiment'' that caused a sudden, unexpected, and permanent increase in the intensity of safety regulation by the U.S. Nuclear Regulatory Commission (NRC) and a shift toward increased disallowances of operating costs by state and local public utility commissions (PUCs). We analyze the nuclear power industry's reaction to this shift in regulatory regime using detailed monthly data on NPP operations collected by the NRC. We find that the industry has been very responsive to NRC regulation insofar as they impute a significantly higher cost to ``imprudent'' operation of a reactor in the post-TMI period than in the pre-TMI period. We find that while NPPs appear safer in the post-TMI period (in terms of having a lower rate of forced outages), they are also substantially less profitable: over 90\% of the expected discounted profits from continued operation of existing NPPs have been eliminated in the post-TMI period. Interestingly, we find that the hypothesis of expected discounted profit maximization provides a much better approximation to NPP operating behavior in the post-TMI period than in the pre-TMI period.

JEL-codes: L (search for similar items in EconPapers)
Pages: 47 pages
Date: 1995-08-16
Note: TeX file, Postscript version submitted, 47 pages
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Journal Article: Optimal Response to a Shift in Regulatory Regime: The Case of the US Nuclear Power Industry (1995)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpio:9508002

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