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The Profitability of Early Canadian Railroads: Evidence from the Grand Trunk and Great Western Railway Companies Spring 1991

Listed author(s):
  • Ann Carlos
  • Frank Lewis

This paper addresses whether government subsidies to two Canadian railroads built in the 1850s - the Grand Trunk and the Great Western - made economic sense. The historical literature suggests that these railroads, although privately unprofitable, were socially profitable. Through a careful study of company records, we find that the Great Western was socially profitable and that a relatively small additional subsidy would also have made it privately profitable. But the Grand Trunk was privately unprofitable and probably socially unprofitable as well. The form of the subsidy offered the railroads - loan guarantees - and the consequences, have a depressingly up-to-date ring. While the Great Western received small amounts of limited guarantees, the Grand Trunk received considerable aid. The Grand Trunk was then encouraged to issue large amounts of heavily discounted debt, which contributed to its eventual failure.

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File Function: First version 1991
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Paper provided by Queen's University, Department of Economics in its series Working Papers with number 814.

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Length: 43 pages
Date of creation: May 1991
Handle: RePEc:qed:wpaper:814
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