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Regulation and the Theory of Legislative Choice: The Interstate Commerce Act of 1887

Gilligan, Thomas W. and Marshall, William J. and Weingast, Barry R. (1987) Regulation and the Theory of Legislative Choice: The Interstate Commerce Act of 1887. Social Science Working Paper, 628. California Institute of Technology , Pasadena, CA. (Unpublished)

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This article concerns the economic incidence of the Interstate Commerce Act of 1887 (ICA). Our focus is the short-haul pricing constraint, a provision of the ICA that prohibited railroads from charging higher rates to isolated, primarily agrarian shippers than it charged to intercity shippers of similar commodities. Utilizing the event study methodology, we find that the impending passage of the ICA generated a distribution of abnormal returns to railroads and shipping firms that is consistent with the theoretical implications of our analysis of the short- haul pricing constraint (SHPC). However, early interpretations of the SHPC by the Interstate Commerce Commission reduced some of the abnormal returns to railroads in a manner that is inconsistent with the hypothesis that the short-haul pricing constraint was an important mechanism of early railroad regulation. The analysis does support a multiple-interest interpretation of the Interstate Commerce Act and has implications for the positive theory of regulation.

Item Type:Report or Paper (Discussion Paper)
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Additional Information:The authors gratefully acknowledge comments from Keith Krehbiel, Mathew McCubbins, Terry Moe, Roger Noll, Douglass North, Mort Pincus, Kenneth Shepsle, and John Wallis; and from the seminar participants at the following universities: Chicago, Duke, Stanford, and Washington. We also thank Elizabeth Case for her editorial assistance and Eric Amel and Brian Marks for their research assistance. Mr. Weingast acknowledges the national Science Foundation (Grant No. SES-8440535) for partial support. Published as Gilligan, Thomas W., William J. Marshall, and Barry R. Weingast. "The economic incidence of the Interstate Commerce Act of 1887: A theoretical and empirical analysis of the short-haul pricing constraint." The Rand Journal of Economics (1990): 189-210.
Group:Social Science Working Papers
Funding AgencyGrant Number
Subject Keywords:Railway systems, Interstate commerce, Shipping, Commercial regulation, Rail lines, Economic regulation, Main lines, Price regulation, Marginal revenue, Industrial regulation
Series Name:Social Science Working Paper
Issue or Number:628
Record Number:CaltechAUTHORS:20170911-162446178
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:81332
Deposited By: Jacquelyn Bussone
Deposited On:11 Sep 2017 23:45
Last Modified:03 Oct 2019 18:41

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