The cost of railroad regulation: the disintegration of American agricultural markets in the interwar period

Authors:
Giovanni Federico, Paul Sharp
Published Online:
16 Apr 2013
DOI:
10.1111/1468-0289.12009
Pages:
1017–1038
Volume/Issue No:
Volume 66 Issue 4

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This article investigates the costs of transport regulation using the example of agricultural markets in the US. Using a large database of prices by state of agricultural commodities, we find that dispersion fell for many commodities until the First World War. We demonstrate that this reflected changes in transport costs which in turn in the long run depended on productivity growth in railroads. The year 1920 marked a change in this relationship, however, and between the First and Second World Wars we find considerable disintegration of agricultural markets, ultimately as a consequence of the 1920 Transportation Act. We argue that this benefited railroad companies in the 1920s and workers in the 1930s, and we put forward an estimate of the welfare losses for the consumers of railroad services (that is, agricultural producers and final consumers).

© Economic History Society 2013

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