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Organizations under Large Uncertainty: An Analysis of the Fukushima Catastrophe

Oct 2011
Working Paper
11-001
By  Masahiko Aoki, Geoffrey Rothwell
This paper analyzes the impacts of the March 11, 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 for the electric power industry by identifying the two shortcomings of a horizontal coordination mechanism: instability under large shocks 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 grid module in Japan. We propose a transitory price mechanism that can restrain price volatility while providing investment incentives.