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The Central Pacific Railroad and the Railroad Land Grant Controversy

Heywood Fleisig
The Journal of Economic History
Vol. 35, No. 3 (Sep., 1975), pp. 552-566
Stable URL: http://www.jstor.org/stable/2119557
Page Count: 15
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The Central Pacific Railroad and the Railroad Land Grant Controversy
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Abstract

This paper asks whether grants of land were necessary to influence either the decision to construct or the speed of construction of the Central Pacific Railroad. Federal bond subsidies permitted large divergences between the private rates of return on total capital and on entrepreneurial capital. The paper presents several estimates of ex post and ex ante rates of return on entrepreneurial capital, excluding profits from land sales. None of these are less than 71 percent per year over a seven-year period. Given plausible estimates of rates of return on entrepreneurial funds in alternative projects ranging from 15 to 25 percent per year, and given the structure of the bond subsidy, the paper concludes that the land grants examined were unnecessary.

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