IDEAS home Printed from https://ideas.repec.org/a/aen/journl/ej43-1-picar.html
   My bibliography  Save this article

Optimal Nuclear Liability Insurance

Author

Listed:
  • Alexis Louaas and Pierre Picard

Abstract

We analyze the insurance of nuclear liability risk, from theoretical and applied standpoints. Firstly, we characterize the optimal insurance scheme for a low-probability industrial accident, such as a nuclear catastrophe, when liability is shared between the firm and the State. Using catastrophe bond data, we then evaluate the cost of capital sustaining such an insurance mechanism. Finally, we characterize the individual lotteries associated with the risk of a nuclear accident in France, and we estimate the optimal coverage. We conclude that the liability limit currently in force is likely to be inferior to the socially optimal level.

Suggested Citation

  • Alexis Louaas and Pierre Picard, 2022. "Optimal Nuclear Liability Insurance," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    • Handle: RePEc:aen:journl:ej43-1-picar
    as

    Download full text from publisher

    File URL: http://www.iaee.org/en/publications/ejarticle.aspx?id=3778
    Download Restriction: Access to full text is restricted to IAEE members and subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Froot, Kenneth A., 2001. "The market for catastrophe risk: a clinical examination," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 529-571, May.
    2. Levy, Haim, 1994. "Absolute and Relative Risk Aversion: An Experimental Study," Journal of Risk and Uncertainty, Springer, vol. 8(3), pages 289-307, May.
    3. Ikefuji, Masako & Laeven, Roger J.A. & Magnus, Jan R. & Muris, Chris, 2015. "Expected utility and catastrophic consumption risk," Insurance: Mathematics and Economics, Elsevier, vol. 64(C), pages 306-312.
    4. MOSSIN, Jan, 1968. "Aspects of rational insurance purchasing," LIDAM Reprints CORE 23, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    5. Georges Dionne (ed.), 2013. "Handbook of Insurance," Springer Books, Springer, edition 2, number 978-1-4614-0155-1, December.
    6. Borensztein, Eduardo & Cavallo, Eduardo & Jeanne, Olivier, 2017. "The welfare gains from macro-insurance against natural disasters," Journal of Development Economics, Elsevier, vol. 124(C), pages 142-156.
    7. Viscusi, W Kip & Aldy, Joseph E, 2003. "The Value of a Statistical Life: A Critical Review of Market Estimates throughout the World," Journal of Risk and Uncertainty, Springer, vol. 27(1), pages 5-76, August.
    8. Emmanuel Farhi & Xavier Gabaix, "undated". "Rare Disasters and Exchange Rates," Working Paper 71001, Harvard University OpenScholar.
    9. Francois Gourio, 2012. "Disaster Risk and Business Cycles," American Economic Review, American Economic Association, vol. 102(6), pages 2734-2766, October.
    10. Strobl, Eric, 2012. "The economic growth impact of natural disasters in developing countries: Evidence from hurricane strikes in the Central American and Caribbean regions," Journal of Development Economics, Elsevier, vol. 97(1), pages 130-141.
    11. Dwight M. Jaffee & Thomas Russell, 1996. "Catastrophe Insurance, Capital Markets and Uninsurable Risks," Center for Financial Institutions Working Papers 96-12, Wharton School Center for Financial Institutions, University of Pennsylvania.
    12. Gignoux, Jérémie & Menéndez, Marta, 2016. "Benefit in the wake of disaster: Long-run effects of earthquakes on welfare in rural Indonesia," Journal of Development Economics, Elsevier, vol. 118(C), pages 26-44.
    13. Yves Schneider & Peter Zweifel, 2004. "How Much Internalization of Nuclear Risk Through Liability Insurance?," Journal of Risk and Uncertainty, Springer, vol. 29(3), pages 219-240, December.
    14. Gollier, Christian & Schlesinger, Harris, 1996. "Arrow's Theorem on the Optimality of Deductibles: A Stochastic Dominance Approach," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(2), pages 359-363, February.
    15. Antony Millner, 2013. "On Welfare Frameworks and Catastrophic Climate Risks," CESifo Working Paper Series 4442, CESifo.
    16. Millner, Antony, 2013. "On welfare frameworks and catastrophic climate risks," Journal of Environmental Economics and Management, Elsevier, vol. 65(2), pages 310-325.
    17. Christian Gollier, 2003. "To Insure or Not to Insure?: An Insurance Puzzle," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 28(1), pages 5-24, June.
    18. Alexis Louaas & Pierre Picard, 2018. "Optimal insurance coverage of low probability-high severity risks," Working Papers hal-01924408, HAL.
    19. Jérémie Gignoux & Marta Menéndez, 2016. "Benefit in the wake of disaster: Long-run effects of earthquakes on welfare in rural Indonesia," Post-Print halshs-01245544, HAL.
    20. repec:reg:rpubli:282 is not listed on IDEAS
    21. Martin L. Weitzman, 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 1-19, February.
    22. Peter Carayannopoulos & M Fabricio Perez, 2015. "Diversification through Catastrophe Bonds: Lessons from the Subprime Financial Crisis," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 40(1), pages 1-28, January.
    23. Xavier Gabaix, 2012. "Variable Rare Disasters: An Exactly Solved Framework for Ten Puzzles in Macro-Finance," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(2), pages 645-700.
    24. Rietz, Thomas A., 1988. "The equity risk premium a solution," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 117-131, July.
    25. Lane, Morton N., 2000. "Pricing Risk Transfer Transactions1," ASTIN Bulletin, Cambridge University Press, vol. 30(2), pages 259-293, November.
    26. Szpiro, George G, 1986. "Measuring Risk Aversion: An Alternative Approach," The Review of Economics and Statistics, MIT Press, vol. 68(1), pages 156-159, February.
    27. Niehaus, Greg, 2002. "The allocation of catastrophe risk," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 585-596, March.
    28. Robert J. Barro, 2009. "Rare Disasters, Asset Prices, and Welfare Costs," American Economic Review, American Economic Association, vol. 99(1), pages 243-264, March.
    29. Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-648, July-Aug..
    30. Lina Escobar Rangel & François Lévêque, 2014. "How Fukushima Dai-ichi core meltdown changed the probability of nuclear accidents," Post-Print hal-01110974, HAL.
    31. Raviv, Artur, 1979. "The Design of an Optimal Insurance Policy," American Economic Review, American Economic Association, vol. 69(1), pages 84-96, March.
    32. Gignoux, Jérémie & Menéndez, Marta, 2016. "Benefit in the wake of disaster: Long-run effects of earthquakes on welfare in rural Indonesia," Journal of Development Economics, Elsevier, vol. 118(C), pages 26-44.
    33. -, 2009. "The economics of climate change," Sede Subregional de la CEPAL para el Caribe (Estudios e Investigaciones) 38679, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    34. Lane, Morton & Mahul, Olivier, 2008. "Catastrophe risk pricing : an empirical analysis," Policy Research Working Paper Series 4765, The World Bank.
    35. Rabl, Ari & Rabl, Veronika A., 2013. "External costs of nuclear: Greater or less than the alternatives?," Energy Policy, Elsevier, vol. 57(C), pages 575-584.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alexis Louaas & Pierre Picard, 2014. "Optimal Insurance For Catastrophic Risk: Theory And Application To Nuclear Corporate Liability," Working Papers hal-01097897, HAL.
    2. Alexis Louaas & Pierre Picard, 2021. "Optimal insurance coverage of low-probability catastrophic risks," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 46(1), pages 61-88, March.
    3. Alexis Louaas & Pierre Picard, 2018. "Optimal insurance coverage of low probability-high severity risks," Working Papers hal-01924408, HAL.
    4. Harrison Hong & Neng Wang & Jinqiang Yang, 2020. "Mitigating Disaster Risks in the Age of Climate Change," NBER Working Papers 27066, National Bureau of Economic Research, Inc.
    5. Jerry Tsai & Jessica A. Wachter, 2015. "Disaster Risk and its Implications for Asset Pricing," NBER Working Papers 20926, National Bureau of Economic Research, Inc.
    6. Dionne, Georges & Harrington, Scott, 2017. "Insurance and Insurance Markets," Working Papers 17-2, HEC Montreal, Canada Research Chair in Risk Management.
    7. Gregory, Richard P., 2021. "Climate disasters, carbon dioxide, and financial fundamentals," The Quarterly Review of Economics and Finance, Elsevier, vol. 79(C), pages 45-58.
    8. Ravi Bansal & Dana Kiku & Marcelo Ochoa, 2016. "Price of Long-Run Temperature Shifts in Capital Markets," NBER Working Papers 22529, National Bureau of Economic Research, Inc.
    9. Andrea Rampa, 2020. "Climate change, catastrophes and Dismal Theorem: a critical review [Klimawandel, Katastrophen und das „Dismal Theorem“: eine kritische Überprüfung]," Review of Regional Research: Jahrbuch für Regionalwissenschaft, Springer;Gesellschaft für Regionalforschung (GfR), vol. 40(2), pages 113-136, October.
    10. Ravi Bansal & Marcelo Ochoa & Dana Kiku, 2016. "Climate Change and Growth Risks," NBER Working Papers 23009, National Bureau of Economic Research, Inc.
    11. Robert Barro & Tao Jin, 2021. "Rare Events and Long-Run Risks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 39, pages 1-25, January.
    12. Kine Josefine Aurland-Bredesen, 2020. "The Benefit-Cost Ratio as a Decision Criteria When Managing Catastrophes," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 77(2), pages 345-363, October.
    13. Jesús Fernández‐Villaverde & Oren Levintal, 2018. "Solution methods for models with rare disasters," Quantitative Economics, Econometric Society, vol. 9(2), pages 903-944, July.
    14. Aurélie Méjean & Antonin Pottier & Marc Fleurbaey & Stéphane Zuber, 2020. "Catastrophic climate change, population ethics and intergenerational equity," Climatic Change, Springer, vol. 163(2), pages 873-890, November.
    15. Adler, Matthew D. & Treich, Nicolas, 2017. "Utilitarianism, prioritarianism, and intergenerational equity: A cake eating model," Mathematical Social Sciences, Elsevier, vol. 87(C), pages 94-102.
    16. Isoré, Marlène & Szczerbowicz, Urszula, 2017. "Disaster risk and preference shifts in a New Keynesian model," Journal of Economic Dynamics and Control, Elsevier, vol. 79(C), pages 97-125.
    17. Beeler, Jason & Campbell, John Y., 2012. "The Long-Run Risks Model and Aggregate Asset Prices: An Empirical Assessment," Critical Finance Review, now publishers, vol. 1(1), pages 141-182, January.
    18. Xu Cheng & Winston Wei Dou & Zhipeng Liao, 2022. "Macro‐Finance Decoupling: Robust Evaluations of Macro Asset Pricing Models," Econometrica, Econometric Society, vol. 90(2), pages 685-713, March.
    19. Fleurbaey, Marc & Zuber, Stéphane, 2017. "Fair management of social risk," Journal of Economic Theory, Elsevier, vol. 169(C), pages 666-706.
    20. Bruno Ćorić & Vladimir Šimić, 2021. "Economic disasters and aggregate investment," Empirical Economics, Springer, vol. 61(6), pages 3087-3124, December.

    More about this item

    JEL classification:

    • F0 - International Economics - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aen:journl:ej43-1-picar. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: David Williams (email available below). General contact details of provider: https://edirc.repec.org/data/iaeeeea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.