Lloyd J. Mercer

Rates of Return for Land-Grant Railroads: The Central Pacific System

Land was the resource that nineteenth-century America possessed in greatest abundance. A large part of the land was initially in the public domain and was transferred to private ownership in the course of the century. Land policy, therefore, had the potential for creating significant and long lasting effects on the American economy—on the rate of settlement of the West, the distribution of income, the rate of economic growth. A substantial body of literature, much of it severely critical, has developed concerning the economic effects of nineteenth-century American land policy. Unfortunately, the criticisms often rest primarily on tales of corruption and thievery, rather than on economic analysis. Certainly many of the stories are true, but they represent an insufficient basis for evaluating the economic effects of land policy. A detailed economic analysis of individual policies is required.

Land Grants to American Railroads: Social Cost or Social Benefit?

Every schoolboy knows that a large fraction of the American public domain was granted to pioneer railroads in the nineteenth century. But was the federal land-grant policy socially beneficial? Professor Mercer provides one imaginative answer based upon an analysis of the economic issues involved and estimates of the private and social rates of return on the investment in the subsidized railroads.

The American Automobile Industry: Investment Demand, Capacity, and Capacity Utilization, 1921-1940

The automobile industry is believed to have had substantial excess capacity in the years preceding the Great Depression. Previous utilization estimates based on engineering capacity support this belief. Indirect estimates of economic capacity are derived here using parameters from the industrys investment-demand function and alternative capital series. Investment demand is estimated using a general neoclassical specification modified by including cash flow. The derived annual utilization estimates indicate the existence of excess capacity in the late twenties, but much less than previously estimated. Quarterly estimates show that continuing excess capacity did not exist until after the cyclical downturn of 1929.

Measurement of Economic Uncertainty in Public Water Resource Development: An Extension

Renewed interest in incorporating measures of uncertainty in public investment decisions is a welcome addition to applied benefit-cost analysis. Taylor and Norths (T-N) recent effort in this Journal to incorporate the consideration of uncertainty in benefit-cost analysis follows a technique that we have endorsed for some time (Mercer and Morgan 1975a, b, and 1976; Stacy and Buxbaum). This paper logically follows T-N by illustrating a more general procedure and demonstrates that inclusion of uncertainty in benefit-cost analysis need not be limited to the triangular distribution. The probability distribution used here is the Weibull. The major advantage of the Weibull distribution is its generality. It does not depend on fixed (absolute) estimates of endpoints (range) and thus offers increased capability to test for sensitivity to uncertainty. Use of the Weibull distribution is illustrated here by application to the Spewrell Bluff project and comparison of the results to those of T-N.

Internal Funds and Automobile Industry Investment: An Evaluation of the Seltzer Hypothesis

Discussion of the role of internally generated funds as a dynamic and influential determinant of investment decisions has been renewed lately in the macroeconomic investment literature. While there is a current revival, the hypothesis is not a new one. In the classic study of the financial history of eight leading American automobile manufacturers over the period 1910 to 1926, Lawrence H. Seltzer concludes that “the greatest part of the growth in their capital resources was derived from reinvested profits; and that this source accounts for much the greater part of their present invested capital.†He estimates that for the period through 1926 net aggregate reinvested profits were equal, on average, to almost 80 percent of the value of tangible invested capital.3 Seltzer suggests that this remarkably high percentage was the result of the unique situation of the automobile industry, although carefully pointing out that the general importance of internal funds may be greater than commonly realized.

Impact of a Water Conservation Campaign Some Extensions on a Time Series Analysis

An extension of a previous abstract time series analysis of water demand, this study in corporates the effects of price changes and water district conservation efforts. The findings indicate that a 10% price increase will reduce water consumption by 3,6% and that a 10% increase in conservation effort (real dollars expended) reduces water usage by 0.4%

Irrigation, Drainage, and Agricultural Development in the San Joaquin Valley

The irrigation history of the San Joaquin Valley (Valley) is composed of several phases starting with individuals digging ditches and continuing to the present State Water Plan. Various institutions have developed to assist in the expansion of irrigation. These include the water companies of the last century and the water districts created by the Act of 1887. Irrigation has produced an enormous rise in the number of farms, population, and harvested acreage in the Valley. Agriculture in the Valley has changed over time. Initially it was cattle ranching with the prime product being the hides. Around the middle of the last century wheat production began and by the 1870’s, following the arrival of the railroad, the Valley was a vast wheat land. Drought and reduced yields resulting from continual cropping began to reduce wheat acreage by the 1890’s. This was accelerated by the expansion of irrigation and the increase of intensive agriculture. The major agricultural activities which have developed in the present century are: (1) Dairying, (2) vegetables, (3) orchard crops, and (4) cotton. These four activities accounted for about 82 percent of harvested land in 1987. The great expansion of irrigation was associated with the large increase in ground-water pumpage and the development of the Central Valley Project pumping northern California water to the Valley. The State Water Project now provides additional northern California water to the Valley. The expansion of irrigation has been accompanied by the rise of severe drainage problems which pose a significant threat to the future of the Valley. Continued ground-water pumpage is seriously depleting the region’s ground-water basin and has produced land subsidence. The Valley’s agricultural future is at risk due to: (1) The demand for water for higher valued uses such as municipal and industrial supplies; (2) the environmental need for additional freshwater to maintain the Sacramento/San Joaquin River Delta and San Francisco Bay Estuary; and (3) the necessity to solve the drainage problem.