The economic organization of nuclear plant projects : some cross-national comparisons

Abstract

This paper examines the relationship between the economic organization of the nuclear power industry and its perfornmance in designing and building nuclear power plants. The institutional relationships that link French, West German and Japanese utilities with their nuclear plant suppliers are described and compared. The focus is on three interrelated aspects of these relationships: (1) the extent of utility involvement in the supply process; (2) the extent to which the various supply functions are "horizontally" integrated; and (3) the nature of the contracts linking the utilities and their suppliers. The transaction cost approach provides the framework for the analysis. The central idea underlying this approach is that important efficiency consequences flow from decisions concerning whether to organize transactions contractually between firms or administratively within them, and that for any given transaction an optimal governance structure exists which depends in a predictable way on certain attributes of the transaction. There are substantial differences in nuclear power plant project organization among the three countries. The transaction cost approach cannot explain why these differences have arisen, since they are much less the outcome of the formal economic optimization process assumed in the theory than of state-specific factors, including industrial traditions, legal restrictions, political initiatives and administrative planning. Nevertheless, the approach provides qualitative insights into the economic implications of these differences. It also provides insights into why an organizational approach that is effective in one structural and/or national cultural context may be more or less effective in another.