Lecture_07

Lecture_07 - Price To review: Social Savings Framework...

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1 Quantity of transport services Price Supply with water routes Supply with railroad Demand To review: Social Savings Framework Additional consumer surplus from RR: transactions that would have taken place with old technology Overstatement of Social Savings if use Q2 Q1 Q2 P2 P1 Additional consumer surplus from RR: transactions that would not have taken place PURPLE + GREEN = Total social savings from RR Between and within region transport Within region traffic: Primarily by wagon/road Between region traffic: Primarily by rivers and canals
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Negative social savings between regions? Transport costs and average mileage, 1890 Without RR With RR Grain 0.139¢/ton mile 0.434¢/ton mile 1574 miles 1044 miles Meat 0.451¢/ton mile 1.071¢/ton mile 1574 miles 926 miles This column imagines a “counterfactual” world without railroads. Fogel uses the known shipping routes to calculate miles and actual shipping rates to calculate costs per ton-mile. $218 without RR vs. $453 with RR! Omitted costs for between-region social savings calculation • Water took more time (inventory costs) • Water had more losses (insurance costs) • Water routes were closed in winter (inventory costs) • Water had wagon haulage costs (haulage costs) • As a result, the - $38.33 mil. social savings in 1890 becomes +$73 mil. or 0.6% of 1890 GNP Remember: We compared freight rates for actual canals to rates for actual RRs. The best (i.e., lowest cost) projects were actually built. Imagine trying to build a canal through the Rockies!
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Lecture_07 - Price To review: Social Savings Framework...

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