Scandinavian Working Papers in Economics

Discussion Papers on Economics,
University of Southern Denmark, Department of Economics

No 20/2012: The cost of railroad regulation: The disintegration of American Agricultural Markets in the interwar period

Giovanni Federico and Paul Sharp ()
Additional contact information
Giovanni Federico: European University Institute and University of Pisa
Paul Sharp: Department of Business and Economics, Postal: University of Southern Denmark, Campusvej 55, DK-5230 Odense M, Denmark

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 dispersion fell 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-codes: K23; L51; N50; N70

33 pages, October 8, 2012

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