Regulation and the theory of legislative choice: The Interstate Commerce Act of 1887

Abstract

The economic effects of federal regulation cannot be explained from congressional institutions. Two factors determine the specific pattern. The first is how interests are represented in the Congress, especially in the relevant committees. Committees matter because their members can veto proposals made by others. The second factor is bicameralism. The need to build majority support in two chambers matters when interest groups are not distributed identically across both houses. Specific interests win in the legislative process because of their representation within the political institutions. We examine the first major regulatory agency, the Interstate Commerce Commission (ICC), founded in 1887. The inception of the ICC was not solely a cartel mechanism for the railroads (as the pure capture view asserts) nor solely a mechanism to correct market abuses by the railroads (as the public interest theory maintains). The ICC provided an benefits, some to railroads and some to nonrailroad interests, notably shorthaul shippers.

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