WikiSummary, the Social Science Summary Database

Cohen, McCubbins, and Rosenbluth: The political economy or nuclear power

From WikiSummary, the Free Social Science Summary Database

 

Cohen, McCubbins, and Rosenbluth. 1995. The political economy or nuclear power: A US-Japan comparison. In Structure and Policy in Japan and the United States, eds. Cowhey and McCubbins.

PUZZLE:

Development of nuclear plants fell off sharply in the US since the late 1970s, but it has mushroomed during the same period in Japan. The economic literature has explained this in supply-side terms (it costs more to build plants in the US), but has overlooked a central question: WHY does it cost more? As it turns out, veto players explains it all.

WHAT THE LIT SAYS:

Economists have focused on supply-side factors, especially the construction costs in the two countries (including construction delays, learning curves, management structure, and financing).

  • Construction delays: Plants come online after 5.3 years in Japan, 11.2 years in the US
  • Learning curves: Plants are standardized in Japan. Three vendors build all the powerplants for the nine utilities. They build "turnkey" plants (i.e. the utility pays a set price and shows up to find everything in place). In the US, there's lots of customization in plant design, making them more expensive to build.
  • Financing: the Japanese Development Bank subsidizes loans for nuclear power development. US utilities have to get financing on the open market.

VARIABLES:

X: VETO POINTS. The US has divided power and checks and balances. There are many veto players, each of which has a separate constituency. Japan's unitary government, parliamentary system, and electoral incentives create only a single veto player: the LDP.

Y1: COST. As the economic literature has shown, it costs more to build reactors in Japan.

Y2: DEMAND. Demand for electricity has grown rapidly in Japan but fallen off in the US.

Y3: UTILITY REGULATION. Japanese regulators allow utilities to charge consumers for construction work in progress, but many US states severely limit this (or don't allow it at all).

Y4: RISK with regard to rate and profit.

THEORY

IN GENERAL: WHY VETO POINTS MATTER

From a social choice perspective, "the greater the number of veto players and the greater the diversity of preferences among them, the less likely there exists a policy that is satisfactory to all players." Nuclear regulation involves both state and federal officials (in the US), meaning there are many veto points, so any agreement will be difficult to make and harder to maintain.

Y1: COST

In the US, a larger number of distinct governmental officials must approve your work. Thus, you have to do more studies, more reports, and jump through more hoops, all of which raises costs. Sure, there are side payments in Japan (to grease the wheels), but that's to be expected: Money can accomplish something when negotiating is easy. But in the US, there is such a small range of feasible alternatives that greasing the wheels isn't likely to get you far. Thus, the authors expect FEWER SIDE PAYMENTS and fewer deals under the US system.

Y2: DEMAND

something about oil shocks...

Y3: UTILITY REGULATION

Electoral competition in the US caused state utility commissions to open up their processes to consumer and environmental interests. As these interests have gained a voice in the regulatory process, it is "no surprise" that "utility regulation has become increasingly hostile to the utilities." This also explains why regulation in the US favors consumers (by charging businesses more) but in the Japan it favors businesses. Since the LDP's strategy involves providing particularistic private benefits in exchange for support, it provides private goods to businesses (e.g. cheap power) rather than public goods like cheap power to citizens.

Y4: RISK

As long as the LDP remains in power, it can credibly commit at the start of a nuclear project not to change course just before the plant is completed. There is no uncertainty. In the US, however, public utility commissions and courts cannot make this commitment. There are so many veto gates that one of them might close on the project. Some plants have even been completely built only to be denied permission to start producing electricity.