The Costs and Benefits of Early Regulation of the Railroads

Abstract

In an earlier article Spann and Erickson (S-E) found that the welfare effects of early ICC regulations were negative. Their calculations fail to include part of the relevant welfare surplus and incorrectly apply demand elasticity estimates. Correct calculations, using S-E's basic data, result in positive welfare effects for 70 percent of alternative calculations across a range of assumptions. For the S-E central case correct calculations indicate positive changes in both producer and consumer surpluses. This ignores regulatory gains from price stability and fairness. The question remaining is how the long-run costs of ICC creation could have been avoided while obtaining the short-run gains.