Economics

Lessons on Corporate Behaviour and Regulatory Policy:
What can we Learn from the 19th Century American Railroad Industry?

Department of Economics
Dr. Mel Cross
Friday Oct. 19, 2018
3:00 pm - 4:00 pm
BAC 236

As railroads developed in the nineteenth century, they presented new industrial characteristics. They employed specialized capital, fixed costs were a relatively high proportion of total costs, and railroads possessed market power. Railroads used discriminatory pricing, set prices for joint products that seemed unrelated to costs, and occasionally operated at a loss for long periods of time. In some cases, railroads would charge short-haul traffic higher rates than they would charge long-haul traffic even though the railroad transported the same type of cargo in both cases and even though short-haul traffic used a stretch of track that was a segment in the journey of long-haul traffic. Moreover, it seemed that problems arising from poor decisions in railroad corporations and other large industrial firms could spill over into a national economy, causing financial panics and crises. An economic model based on classical assumptions of mobility of capital and atomistic (or perfect) competition was not sufficient to explain these patterns.

Arthur Hadley (1856-1930) analyzed these patterns in two books (Railroad Economics, 1885; Economics, 1896) and a series of articles. Though his work has faded into obscurity, Hadley examined concepts that we now place under the headings of theory of the firm, principle-agent problems, moral hazard, economics of property rights, and new institutional economics. This presentation will examine Hadley’s contributions in these areas and relate them to similar, modern analysis.

Melvin L. Cross is a retired Associate Professor, Department of Economics, Dalhousie University. His teaching and research interests are history of economic thought and environmental and natural resource economics. He teaches part-time at Dalhousie University. He has held appointments as a visiting scholar at Queen’s University, the University of Sydney (Australia), Carlton University, and Shandong University of Finance and Economics (Jinan, China). He holds an Associate of Arts Degree from Dawson Community College, a BA from the University of Montana, an MA from Simon Fraser University, and a PhD from Texas A&M University.