Preparing for the Improbable: Safety Incentives and the Price-Anderson Act

Abstract

The Price-Anderson Act requires commercial nuclear power plants to maintain (approximately) $660 million in off-site accident coverage through two forms of insurance: market-provided private insurance and self-insurance in the form of retrospective assessments of reactor owners. We examine how changes in retrospective assessments influence the safety incentives of nuclear reactor owners. As one would expect, increases in self-insurance premiums increase the incentive to install safety systems more quickly. However, a more important conclusion is that self-insurance premiums as a function of reactor riskiness, rather than equal payments by reactor owners, yield a higher level of safety than under the current law.