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The economic incidence of the Interstate Commerce Act of 1887: A theoretical and empirical analysis of the short-haul pricing constraint

Gilligan, Thomas W. and Marshall, William J. and Weingast, Barry R. (1990) The economic incidence of the Interstate Commerce Act of 1887: A theoretical and empirical analysis of the short-haul pricing constraint. RAND Journal of Economics, 21 (2). pp. 189-210. ISSN 0741-6261.

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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.

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Additional Information:© 1990 RAND Corporation. We wish to thank seminar participants at the University of Chicago, Stanford University, Washington University, and Claremont Graduate School for helpful comments and suggestions. The comprehensive and thoughtful comments of the Editorial Board and two anonymous referees substantially improved this article. We alone assume responsibility for any remaining errors. Mr. Weingast gratefully acknowledges partial financial support from the National Science Foundation (grant No. SES-8617516). Formerly SSWP 629.
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Subject Keywords:Railway systems, Interstate commerce, Shipping, Commercial regulation, Rail lines, Economic regulation, Main lines, Price regulation, Marginal revenue, Industrial regulation
Issue or Number:2
Record Number:CaltechAUTHORS:20171110-135722354
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:83128
Deposited By: Jacquelyn Bussone
Deposited On:16 Nov 2017 21:35
Last Modified:03 Oct 2019 19:02

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