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Organizations under Large Uncertainty: An Analysis of the Fukushima Catastrophe

Author

Listed:
  • Masahiko Aoki

    (Department of Economics and SIEPR, Stanford University)

  • Geoffrey Rothwell

    (Department of Economics and SIEPR, Stanford University)

Abstract

This paper analyzes the impacts of the March 11, 2011, earthquake and tsunami at the Fukushima nuclear power plant in Japan, which were amplified by a failure of coordination across the plant, corporate, industrial, and regulatory levels, resulting in a nuclear catastrophe comparable in cost to Chernobyl. It derives generic lessons for industrial structure and regulatory frame for the electric power industry by identifying the two shortcomings of a horizontal coordination mechanism: instability under large shocks and the lack of defense in depth.The suggested policy response is to harness the power of Òopen-interface-rule-based modularity by creating an independent nuclear safety commission and an independent system operator owning the transmission grid module in Japan. We propose a transitory price mechanism that can restrain price volatility while providing investment incentives.

Suggested Citation

  • Masahiko Aoki & Geoffrey Rothwell, 2011. "Organizations under Large Uncertainty: An Analysis of the Fukushima Catastrophe," Discussion Papers 11-001, Stanford Institute for Economic Policy Research.
    • Handle: RePEc:sip:dpaper:11-001
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    File URL: http://www-siepr.stanford.edu/repec/sip/11-001.pdf
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    References listed on IDEAS

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    1. Ricardo Alonso & Wouter Dessein & Niko Matouschek, 2008. "When Does Coordination Require Centralization?," American Economic Review, American Economic Association, vol. 98(1), pages 145-179, March.
    2. Aoki, Masahiko, 2010. "Corporations in Evolving Diversity: Cognition, Governance, and Institutions," OUP Catalogue, Oxford University Press, number 9780199218530.
    3. Masahiko Aoki, 2013. "Toward an Economic Model of the Japanese Firm," Chapters, in: Comparative Institutional Analysis, chapter 18, pages 315-341, Edward Elgar Publishing.
    4. Rothwell, Geoffrey, 1996. "Organizational Structure and Expected Output at Nuclear Power Plants," The Review of Economics and Statistics, MIT Press, vol. 78(3), pages 482-488, August.
    5. Masahiko Aoki & Hirokazu Takizuwa, 2013. "Information, Incentives, and Option Value: The Silicon Valley Model," Chapters, in: Comparative Institutional Analysis, chapter 7, pages 72-104, Edward Elgar Publishing.
    6. Masahiko Aoki, 2013. "Horizontal vs. Vertical Information Structure of the Firm," Chapters, in: Comparative Institutional Analysis, chapter 5, pages 57-58, Edward Elgar Publishing.
    7. Bushnell, James & Hobbs, Benjamin F. & Wolak, Frank A., 2009. "When It Comes to Demand Response, Is FERC Its Own Worst Enemy?," The Electricity Journal, Elsevier, vol. 22(8), pages 9-18, October.
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    Cited by:

    1. Masahiko Aoki, 2011. "The Five-Phases of Economic Development and Institutional Evolution in China and Japan," Development Economics Working Papers 23196, East Asian Bureau of Economic Research.
    2. Trillas, Francesc, 2013. "The Institutional Architecture of Regulation and Competition: Spains's 2012 Reform," IESE Research Papers D/1067, IESE Business School.
    3. Francesc Trillas Jané, 2016. "Behavioral Regulatory Agencies," Working Papers wpdea1606, Department of Applied Economics at Universitat Autonoma of Barcelona.

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    More about this item

    Keywords

    horizontal coordination; modularity; nuclear power; regional monopoly; electricity regulation; safety regulation; public ownership; independent system operator;
    All these keywords.

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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