Abstract
Ten New York canals are evaluated as an integrated transport investment covering 1817–1880. A newly estimated willingness-to-pay (WTP) of canal users augments toll revenues as a benefits stream, and all effects are rendered in real terms. Net present value is positive for a range of real discount rates from 4 to 10 percent. A Monte Carlo simulation of uncertain WTP and discount rates shows median real net present value of US$26 million, and a zero probability of negative values. Segal is shown to have grossly overstated benefits of the Erie Canal.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
Fogel [op. cit., p. 18] cites an 1884 New York comptroller’s report lamenting the fragmented nature of the canal boat industry.
These estimates are exceedingly crude. For example, the estimated average line haul for the Erie appears to be nothing more than half the distance between Albany and Buffalo.
The states are New York, Pennsylvania, Ohio, Michigan, Indiana, Maryland, Delaware, New Jersey and District of Columbia [U.S. Census Bureau, 1883, IV, p. 289]. The proportion of Erie canal eastbound freight tonnage originating in the Midwest rose from 14.5 percent in 1837 to 87 percent in 1880 [Report of the Committee on Canals 1900, p. 169].
Passenger toll revenue averaged one percent of freight revenue and is available for 1837–48 only and therefore omitted.
Ton Miles (Q)=−105.7+0.097Tons +0.0052Miles, R 2=0.88, ρ=0.71. (t=−1.11) (t=4.25) (t=4.13)
Both demand and supply are downward sloping, but the supply curve is steeper than the demand and equilibrium is stable. Pecuniary or technological externalities could account for the downward slope of the freight supply equation. For example, the cost per ton of freight capacity may decline as more and larger boats are built.
Setting railroad miles at zero and industrial production at the average value for 1826–1836 in equation (4) yields an intercept less than the known canal freight and toll rate, no doubt because no wagon rates are used in its estimation.
Nominal toll rates were unchanged from 1820–1832, so changes in ton miles reflect freight volumes.
Segal’s [op. cit.] ton mileage estimate of 144 million per year for the Erie, 1836–1847, seems a serious underestimate. The data presented here estimate ton miles at 432 million per year for this period for all canals, the lion’s share attributable to the Erie.
Total (real) construction costs for the original Erie, Champlain, Oswego and Black River canals are allocated over the period of construction using Cranmer [1960] method, which is based on 24 canals built between 1815 and 1860. The Auditor’s Report of 1882 and the 1900 Report of the Committee on Canals are sources.
McGrattan and Prescott estimate net of tax returns, but there are no income taxes in the 19th century.
In the Cobb-Douglas framework growth of output is the share weighted input growth plus productivity growth.
Feeder effects on the Erie of the unprofitable canals are unlikely to alter this conclusion since the three profitable canals accounted for 86 percent of system tonnage and 97 percent of toll revenue in 1852 [Annual Report of State Engineer and Surveyor, 1854, p. 102].
References
Boardman, Anthony E., David H. Greenberg, Aidan R. Vining, and David L. Weimer. 2006. Cost-Benefit Analysis: Concepts and Practice, 3rd ed Upper Saddle River, NJ: Pearson Prentice Hall.
Burgess, David F., and Richard O. Zerbe. 2011. Appropriate Discounting for Benefit–Cost Analysis. Journal of Benefit–Cost Analysis, 2(2): doi:10.2202/2152-2812.1065.
Cranmer, H. Jerome. 1960. Canal Investment, 1815–1860, in Trends in the American Economy in the Nineteenth Century (NBER), edited by William N. Parker Princeton, NJ: Princeton University Press.
Davis, Joseph H. 2004. A Quantity-Based Annual Index of U.S. Industrial Production, 1790–1915. Quarterly Journal of Economics, 119(4): 1177–1215 (Technical Index at NBER.org).
Fishlow, Albert. 1965. American Railroads and the Transformation of the Ante-Bellum Economy. Cambridge, MA: Harvard University Press.
Fishlow, Albert. 2000. Internal Transportation in the Nineteenth and Early Twentieth Centuries, in The Cambridge Economic History of the United States, Volume II edited by Stanley Engerman and Robert E. Gallman New York: Cambridge University Press, 543–642.
Fogel, Robert W. 1964. Railroads and American Economic Growth: Essays in Econometric History. Baltimore: Johns Hopkins Press.
Fogel, Robert W. 1979. Notes on the Social Saving Controversy. The Journal of Economic History, 39(1): 1–54.
Gallman, Robert. E. 1986. The United States Capital Stock in the Nineteenth Century, in Long-Term Factors in American Economic Growth, edited by Stanley L. Engerman and Robert E. Gallman Chicago: University of Chicago Press (NBER), 165–214.
Greene, William. 2007. Limdep Computer Program: Version 9. Plainview, NY: Econometric Software.
Just, Richard E, Darrell L. Hueth, and Andrew Schmitz. 2004. The Welfare Economics of Public Policy. Northampton, MA: Edward Elgar.
McGrattan, Ellen R., and Edward C. Prescott. 2003. Average Debt and Equity Returns: Puzzling? American Economic Review, 93(2): 392–397.
Meyer, Balthasar Henry. 1917. History of Transportation in the United States Before 1860, (Prepared by Caroline E. MacGill and Staff). Washington DC: The Carnegie Institution.
New York (State) Legislature. 1854. Annual Report of the State Engineer and Surveyor on the Canals of New York. Albany, NY: Charles Van Benthuysen & Co.
New York (State) Legislature. 1866. Annual Report of the Auditor of the Canal Department on the Tolls, Trade and Tonnage of the Canals of the State of N.Y. for 1865. Assembly Document 87. Albany, NY: C. Wendell, State Printer.
New York (State) Legislature. 1878. Annual Report of the Canal Commissioners of the State of New York for 1877. Albany, NY: Jerome B. Parmenter, State Printer.
New York (State) Legislature. 1881. Annual Report of the Auditor of the Canal Department on the Tolls, Trade and Tonnage of the Canals of the State of N.Y. for 1880. Albany, NY: Weed, Parsons and Co.
New York (State) Legislature. 1882. Annual Report of the Auditor of the Canal Department, Showing the Expenditures on the Canals. Assembly Document 33. Albany, NY: Weed, Parsons and Co.
New York (State). 1900. Report of the Committee on Canals of New York State. Assembly Document 79. Albany, NY: J.B. Lyon Co.
Rubin, Julius. 1961. An Innovating Public Improvement: The Erie Canal, in Canals and American Economic Development, edited by Carter Goodrich New York: Columbia University Press, 15–66.
Segal, Harvey H. 1961. Canals and Economic Development, in Canals and American Economic Development, edited by Carter Goodrich New York: Columbia University Press, 216–248.
Smith, Walter B. 1963. Wage Rates on the Erie Canal, 1828–1881. Journal of Economic History, 23(3): 298–311.
U. S. Census Bureau. 1883. 10th Census Reports, Vol. IV, Report on the Agencies of Transportation in the United States, Washington DC (section on railroads by A. Shuman).
Warren, George F., and Frank A. Pearson. 1933. Prices. New York: John Wiley & Sons.
Whitford, Nobel E. 1906. History of the Canal System of the State of New York (Supplement to the Annual Report of the State Engineer and Surveyor of the State of New York for the Fiscal Year Ending September 30, 1905). Two Volumes. Albany, NY: Brandow Printing.
Author information
Authors and Affiliations
Corresponding author
Appendix
Rights and permissions
About this article
Cite this article
Vitaliano, D. Benefits and Costs of the Erie Canal: A New View. Eastern Econ J 42, 581–593 (2016). https://doi.org/10.1057/eej.2014.79
Published:
Issue Date:
DOI: https://doi.org/10.1057/eej.2014.79