Does a higher liability limit reduce the risk-taking of nuclear power plants?

Abstract: Risky industries, such as nuclear power plants, typically face a limited liability in the event of accidents. This has caused some concerns that owners would take excessive risks in order to increase short-term profits. An empirical study has been done on reactors in the U.S., where the focus is on a change in the liability limit in 2003. The aim is to investigate whether an increase in the liability limit leads to less risk-taking by the nuclear power plants---with safety performance (risk-taking) being measured by unplanned stops and worker radiation exposure. Due to the lack of a true control group, the plants are separated by ownership in order to test the model under different incentive structures. It is found that divested plants decreased unplanned stops, and non-divested plants decreased worker radiation exposure, in response to the increased liability limit. The result is dependent on some assumptions which can be tested by including additional, albeit difficult to measure, control variables such as safety regulations.