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HAZARD COMPENSATION AND INCENTIVE SYSTEMS: AN ECONOMIC 155 PERSPECTIVE original typesetting files. Page breaks are true to the original; line lengths, word breaks, heading styles, and other typesetting-specific formatting, however, cannot be About this PDF file: This new digital representation of the original work has been recomposed from XML files created from the original paper book, not from the retained, and some typographic errors may have been accidentally inserted. Please use the print version of this publication as the authoritative version for attribution. Stage 3: Accidents Communities are naturally concerned about the risk of an accident and its consequences to residents. There is need for some type of guaranteed ex post compensation by the developer, the insurance industry, or the government to cover, at least partially, the accident costs to victims and to act as an incentive for the design of safer facilities. It may be extraordinarily difficult to look toward traditional insurance arrangements to provide this form of compensation if the risk is not well specified and if there is a long latency period associated with health consequences (Katzman, 1985). Today there is great uncertainty about how future court settlements will assign liability for accidentsâthe uncertainties involve both the magnitude of awards and their timing (Huber, in this volume). In addition, chronic health problems have multiple causes and may be influenced by genetic and nutritional factors. Hence, it is difficult to determine whether hazardous substances produce specific effects, and traditional toxic tort law may fail to provide adequate compensation for these damages (Trauberman, 1981). Federal-Private Insurance Some type of federal support for private insurance programs may be necessary to cover the costs of accidents while at the same time offering protection to industry from the consequences of environmental pollution. Specifically, a reinsurance guarantee by the federal government for losses above a certain magnitude may enable the private sector to cover the first layer of losses. The Price-Anderson Act (42 U.S.C. 2210[g]), which provides compensation for damages due to the development or use of nuclear power, authorizes the Nuclear Regulatory Commission to contract with private insurance companies to make payment for damages. Similarly, the National Flood Insurance Program offers some persons in flood-susceptible areas the opportunity to purchase federally subsidized flood insurance through a joint federal-private program. Self-Insurance Funds If private or government insurance is unavailable, special types of self- insurance arrangements may be necessary to protect industry from large losses due to accidents. For example, the chemical industry may want to administer an insurance fund to pay for specific losses incurred by parties that store or dispose of waste. This concept may be attractive, but it has large-scale administrative problems. Some type of monitoring and control of facilities would be essential in order to base premiums on risk and to ensure that those participating in the process