The Cost of Railroad Regulation: The Disintegration of American Agricultural Markets in the Interwar Period

29 Pages Posted: 16 Jun 2011

See all articles by Giovanni Federico

Giovanni Federico

European University Institute

Paul Richard Sharp

University of Southern Denmark - Department of Business and Economics

Date Written: June 16, 2011

Abstract

We investigate the costs of transportation regulation using the example of agricultural markets in the United States. Using a large database of prices by state of agricultural commodities, we find that the coefficient of variation (as a measure of market integration between states) falls for many commodities until the First World War. We demonstrate that this reflected changes in transportation costs which in turn in the long run depended on productivity growth in railroads. 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 (i.e. agricultural producers and final consumers).

Keywords: market integration, price convergence, United States, agriculture, transportation regulation

JEL Classification: K23, L51, N5, N7

Suggested Citation

Federico, Giovanni and Sharp, Paul Richard, The Cost of Railroad Regulation: The Disintegration of American Agricultural Markets in the Interwar Period (June 16, 2011). Univ. of Copenhagen Dept. of Economics Discussion Paper No. 11-17, Available at SSRN: https://ssrn.com/abstract=1865713 or http://dx.doi.org/10.2139/ssrn.1865713

Giovanni Federico

European University Institute ( email )

Badia Fiesolana
Via dei Roccettini 9
I-50016 San Domenico Fiesole, Tuscany 50014
Italy

Paul Richard Sharp (Contact Author)

University of Southern Denmark - Department of Business and Economics ( email )

DK-5230 Odense
Denmark

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