My fellow UCLA grad and former Council of Economic Advisers senior economist colleague applies Ronald Coase-type thinking to limits on liability for nuclear power plants. He writes:

The same principle applies to nuclear construction. If people and owners of property are compensated fully for the damage caused by a nuclear accident — if the owners of nuclear facilities bear full liability for the adverse effects of accidents — too many people, businesses and physical capital will be located near the reactors, yielding an increase in damages when a serious accident occurs. This analytic truth holds even for reactors sited in earthquake or tsunami zones; sometimes those are the most appropriate sites for the reactors even given the risks. Accordingly, the Price-Anderson liability limit at least directionally is economically efficient — it conserves resources — by providing incentives for those who can avoid the potential damage from a nuclear accident most cheaply to do so, thus preventing some portion of prospective nuclear damage by limiting location choices near the reactors below the levels that otherwise would be observed if public policy imposed full liability on the nuclear owners.

Read the whole thing. It’s not long.