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Was the first transcontinental railroad expected to be profitable? : evidence from entrepreneur's declared expectations, an empirical entry decision model, and ex-post information

The construction of the first transcontinental railroad is a key event in the westward expansion of the rail network and the US economy. The railroad was built between 1863 and 1869 with large federal government subsidies. The standard view is that the railroad was not expected to be profitable (built ahead of demand) but turned out to be profitable (built after demand). The thesis develops a novel approach to evaluate whether the first transcontinental railroad was expected to be profitable. The approach emphasises on using information generated during the ex-ante period and comparing it to ex-post information. The ex-ante information comes from two different sources. First, reports written by entrepreneurs (and overlooked by previous literature) are used to identify entrepreneurs' declared expectations. Second, since such expectations could be different from entrepreneurs' true beliefs, an empirical entry decision model is used to evaluate the plausibility of declared expectations - simulated expectations. The ex-post information was revealed by the operation of the railroad, once built. The three sets of information (entrepreneur's declared expectations, simulated expectations, and observed performance) are compared to identify unforeseen events that may have affected profitability. The evidence indicates the railroad was expected to be profitable, and thus it was both ex-ante and ex-post built after demand. Subsidies may have still helped to promote construction during the Civil War.
CreatorsDuran, Xavier H.
PublisherLondon School of Economics and Political Science (University of London)
Source SetsEthos UK
Detected LanguageEnglish
TypeElectronic Thesis or Dissertation

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