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


  • We are grateful for research assistance by Hege Susanne Haugland, Andreea-Alexandra Maerean, and Mekdim Regassa. Some of this article was written during Paul Sharp's time as an academic assistant at the Robert Schuman Centre for Advanced Studies at the European University Institute as part of the ERC-funded research programme ‘Market integration and the welfare of Europeans’. We would like to thank Stephen J. DeCanio, Price Fishback, Karl Gunnar Persson, and participants at the ‘Fifth Summer School “Economic Integration and Spatial Dynamics in Historical Analysis” ’, Universidad Carlos III Madrid, the BETA Workshop 2011 in Strasbourg, and at seminars at Copenhagen, the EUI, Humboldt, and the LSE for help and suggestions.


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).