A microeconomic analysis toward building liability law in the post-earthquake era

Abstract

First, we investigate which type of the liability law that protects nuclear power plants against catastrophe is socially optimal. We show that when a firm with a few funds is managed under the strict liability, maximization of social welfare is impossible since the firm may not cope with the damage by a catastrophic disaster. On the other hand, when the government sets suitable safety standards in the case where a firm has a few funds, maximization of social welfare is possible by using the negligence rule. Second, we investigate a normative analysis of liability problems that deal with how to share joint liability among agents. We axiomatize the Shapley value for this liability problem.