The efficiency of public and private firms is usually compared in industries which have heavy regulation and limited competition. In this paper we present a case study in which the effects of property rights can be isolated from the effects of regulation on noncompetitive markets. We compare the postwar productivity performance of the Canadian National and Canadian Pacific Railroads. Contrary to the predictions of the property rights literature, we find no evidence of inferior performance by the government-owned railroad. We conclude that any tendency toward inefficiency resulting from public ownership has been overcome by the benefits of competition.

An opportunity to compare economic performance under substantially different levels of regulation is afforded by the differences in the regulatory environments of U. S. and Canadian railroads. We find that the less regulated Canadian railroads have achieved far higher productivity growth than have U. S. railroads. Furthermore, in spite of natural conditions favoring U. S. railroads, Canadian railroads have achieved a higher level of productivity. These findings for the typical U. S. and Canadian railroad are borne out by similar results for specific railroads. Had U. S. railroad productivity grown at the Canadian rate, U. S. railroad costs would be several billion dollars less each year.

Ernst R. Berndt, Laurits R. Christensen; The Internal Structure of Functional Relationships: Separability, Substitution, and Aggregation12, The Review of E