Compensating Nuclear Damage: A Comparative Economic Analysis of the U.S. and International Liability Schemes
70 Pages Posted: 18 Dec 2008 Last revised: 4 Nov 2009
Date Written: November 24, 2008
This paper compares the compensation regime under the EU Price-Anderson Act with the regime installed by international conventions for the compensation of damage caused by nuclear accidents. Economic analysis of law is used for a critical comparison. The paper shows some similarities in the regimes, for example that in both regimes the nuclear operator's liability is strict and the operator must provide a financial guarantee for the first layer of strict liability. It is argued that both strict liability, given the unilateral character of nuclear accidents, and compulsory insurance, given the insolvency risk, can be supported by economic analysis. Economics, though, was always critical of both the financial limit on nuclear operator's liability and the legal channelling of the liability to the operator.
The total amounts of compensation in the American regime are substantially higher, equalling the costs of a nuclear accident in a optimistic scenario. Moreover, the costs are financed by the liable operator in combination with the collectivity of operator, thus leading to a better internalisation of the risk. In the international regime, not only is the liability of the operator limited, but the victim compensation is also subsided through public funding. Both may have negative consequences. The low limits, combined with still low compensation in the international regime, may lead to many victims remaining uncompensated and potentially to underdeterrence. We argue that the US example gives an important lesson for the international regime. Through a mutual risk sharing by the nuclear industry, inherent in the US regime, on the one hand higher amounts of compensation for victims can be generated and on the other hand public funding can be eliminated as a result of which a better internalisation of the costs of a nuclear accident will take place.
Keywords: nuclear damage, strict liability, channelling of liability, compulsory insurance, Price-Anderson Act, liability insurance, international liability conventions
JEL Classification: K13, K33, Q28
Suggested Citation: Suggested Citation