Staff Report 389

Does Regulation Reduce Productivity? Evidence From Regulation of the U.S. Beet-Sugar Manufacturing Industry During the Sugar Acts, 1934-74

James A. Schmitz, Jr. | Senior Research Economist
Shi Qi
Benjamin Bridgman

Published April 1, 2007

Abstract
We study the impact of regulation on productivity and welfare in the U.S. sugar manufacturing industry. While this U.S. industry has been protected from foreign competition for nearly 150 years, it was regulated only during the Sugar Act period, 1934–74. We show that regulation significantly reduced productivity, with these productivity losses leading to large welfare losses. Our initial results indicate that the welfare losses are many times larger than those typically studied—those arising from higher prices. We also argue that the channels through which regulation led to large productivity and welfare declines in this industry were also present in many other regulated industries, like banking and trucking.


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