Coordination Under Uncertain Conditions: An Analysis of the Fukushima Catastrophe

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Author: 
Masahiko Aoki
Geoffrey Rothwell
Description: 
ADBI Working Paper Series
JEL codes: 
Abstract: 
This paper analyzes the impacts of the 11 March 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 of the electric power industry by identifying the two shortcomings of a horizontal coordination mechanism: instability under large shock and the lack of “defense in depth.” The suggested policy response is to harness the power of “open-interface-rule-based modularity” by creating an independent nuclear safety commission and an independent system operator owning the transmission grids in Japan. We propose a transitory price mechanism that can restrain price volatility while providing investment incentives.
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