Liability and safety in nuclear power plants

The roles of liability law and liability insurance in producing incentives for safety are examined. The specific focus is the Price-Anderson Act of 1957, which governs liability arising from accidents at nuclear reactors. It has been said that the act reduces safety incentives and unduly endangers the population. Examined in detail is the analytical basis upon which this position depends, concerning external damages, i.e., those imposed on the public by a reactor accident, and the liability of the firm to make good such damages. The strength of the safety incentive is dependent upon how swiftly and accurately the price of liability insurance adjusts. Financial markets typically give weaker incentives for safety. Investors are not experts in safety, as are conventional insurers. Safety incentives come only from the layer of insurance supplied by conventional insurers, for this is the only price which responds to safety. The first section focuses on the responsiveness of prices and leaves for the second section the task of resolving a more technical issue: namely, how much should liability be and to whom should it be paid