Under current international agreements, operators of nuclear power plants are obliged to take out damage insurance for at least 700 million Euro. This sum pales into insignificance against the potential damage resulting from a major nuclear accident, however. In the event of a full-blown disaster the damage will consequently be borne almost entirely by society at large and there will thus be external costs. The external costs of risks are determined by the expected levels of risk and of risk aversion. If risk aversion is not included, the external costs of a nuclear power plant due to uninsured risks are limited (several million Euro per annum). Factoring in risk aversion can make the external costs dozens of times higher, however. Unfortunately, there is still very little knowledge about the actual values of risk aversion. This study calculates the theoretical effects of varying degrees of risk aversion on the level of external costs.
Authors: Maartje Sevenster, Femke de Jong, Marc Davidson, Harry Croezen