"Public Investment and the Social Returns of American Canals"

How valuable are public infrastructure investments and when do they fail to deliver large social returns? In nineteenth century America, state governments financed canals, providing 73 percent of total investment and operating many as public enterprises. Although this infrastructure significantly reduced trade costs and united eastern and western markets, the canals were largely unprofitable. This paper estimates the benefits these canals produced through increased real estate values and assesses whether public investment was socially beneficial. Using historical transport networks and a new data set of freight rates from 1840 to 1860, I estimate inter-county trade costs and the impact of changes in counties’ market access on their real estate values. I find that a 10 percent decrease in market access is associated with a 4.1 percent decrease in real estate values. I then construct counterfactual trade costs corresponding to a scenario in which the state canals were never built, and from this, counterfactual changes in population, market access, and real estate values. I find that without state canals, land rents would have been between $2 to $7 million lower between 1835 and 1860. Combined with cost and revenue data, this suggests state canals earned an internal rate of return of 6.9 percent and thus were marginally beneficial. The modest returns can be attributed to a combination of railroad competition and states pursuing too many projects, some of which may have been expected to produce benefits for the counties that gained them, even at the expense of those that did not.

Link: Public Investment and the Social Returns of American Canals

"Rulemaking with Memory: Regulatory Capture in a Dynamic Contest"

Regulatory capture occurs when the actions of a regulated industry divert regulation from the public interest and toward the interests of industry. In this paper, a dynamic model of rulemaking is studied in which competing interests attempt to persuade a pivotal regulator to shift policy in their favored direction. This is modeled as an infinite-horizon dynamic contest, where policy is set in the first period and revised in each subsequent period. In each period, interest groups produce arguments to present to the regulator, who allocates a share of policy to each interest according to the probability that each side is “correct.” Arguments are assumed to partially carry over between periods, so that evidence presented in a given period retains some relevance when policy is subsequently revised. This can be interpreted as the regulator updating the prior probability they attach to the validity of each interests’ policy position. In the steady-state, I find that the interest group with lower lobbying costs will tend to capture a larger share of policy. This suggests that in settings where a public interest group possesses dispersed costs and hence, difficulty organizing, regulated industry will tend to disproportionately influence policy over time.

Link: Rulemaking with Memory: Regulatory Capture in a Dynamic Contest

"Public Investment and the Social Returns of Antebellum Railroads"

• Extends methodology of job market paper to study public rail investments

"Transportation and the Development of Corporations"

• Examines the impact of gaining a canal on manufacturing, insurance and banking incorporations

"Nineteenth Century Road Digitization"

• Creating GIS shapefiles for the primary stage routes in antebellum America.