Nuclear accidents liability and a grave natural disaster of an exceptional character

This article argues that the exclusion of a defense based on a 'grave natural disaster of an exceptional character' following the 1997 amendments to the 1963 Vienna Convention on Civil Liability for Nuclear Damage is counterproductive. For this, we model the absolute liability rule in the event of a nuclear accident and analyse the impact of this amendment in an environment where for certain states of nature the damage exceeds the operator's liability ceiling, thus inducing a problem of moral hazard. While the socially optimal safety level remains unattainable even with a defense, we show that the level can be significantly improved by intelligently defining the critical design basis.