Land Use, Supply, and Welfare Distortions Induced by Inefficient Freight Rates.

Although the contribution of railroad investment to Canadian econom ic development has been extensively analyzed, the consequences of the freight rate structure have not been examined. This paper is concerne d with how various pricing policies affect land-use patterns, agricultural supply, and welfare. It is shown that the Crow's Nest Agreement left freight rates 44 percent, and a (counterfactual) monopoly rate 70 percent, above marginal cost. The model and data imply reductions in supply and land use of 32 percent and 50 percent for these two pricing scenarios respectively. A new figure for aggregate Prairie land rent in 1901 is calculated also.