Wednesday, April 29, 2015

Two by Giocoli on the Law and Economics of Early 20th Century Rate Regulation

Nicola Giocoli, University of Pisa, has posted two papers relating to the law and economics of the regulation of railroad rates in the United States at the turn of the twentieth century.  The first is When Law and Economics Was a Dangerous Subject: The Controversy Over Railroad Regulation Before the Hepburn Act:
At the turn of the 20th century railroad regulation was hotly debated in the US. Railways were accused of abusing of their monopolistic positions, in particular by discriminating rates. Public opinion’s pressure for tighter regulation led to the 1906 enactment of the Hepburn Act, which strengthened the powers of the Interstate Commerce Commission. American economists actively participated to the debate. While most of them sided with the pro-regulation camp, the best economic analysis came from those who used the logic of modern law and economics to demonstrate how most railroads’ practices, including rate discrimination, were simply rational, pro-efficiency behavior. However, as relatively unknown Chicago University economist Hugo R. Meyer would discover, proposing that logic in public events could at that time cost you your academic career.
The second is The (Rail)road to Lochner: Reproduction Cost and the Gilded Age Controversy on Rate Regulation:
The controversy over railroad rates regulation represented a fundamental component of the jurisprudential trajectory that, culminating in Lochner v. New York, led to the era of so-called laissez faire constitutionalism. Constitutional protection of property required that regulation be such as to preserve the value of the regulated business. The paper builds on Siegel 1984 to argue that, by indicating in Smyth v. Ames (1898) reproduction cost as the correct technique to calculate the value of a railways, the Supreme Court retained its allegiance to the fundamental tenets of classical political economy even in a period of massive economic transformations, when classical economics was increasingly viewed as unable to capture the new reality of American industrial life.
"Siegel 1984" is a reference to Stephen A. Siegel’s “Understanding the Lochner Era: Lessons from the Controversy over Railroad and Utility Rate Regulation,” Virginia Law Review 70 (1984): 187-263.

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