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

Abstract

This article investigates the costs of transport regulation using the example of agricultural markets in theUS. Using a large database of prices by state of agricultural commodities, we find that dispersion fell for many commodities until theFirstWorldWar. 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 theFirst andSecondWorldWars we find considerable disintegration of agricultural markets, ultimately as a consequence of the 1920TransportationAct. 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).