Tracks Across Continents, Paths through History: The Economic Dynamics of Standardization in Railway Gauge

Published by EH.NET (October 2010)

Douglas J. Puffert, Tracks Across Continents, Paths through History: The Economic Dynamics of Standardization in Railway Gauge. Chicago: Chicago University Press, 2009. xii + 360 pp.? ISBN-13: 978-0-226-68509-0, ISBN-10:0-226-68509-8.

Reviewed for EH.NET by Dan Bogart, Department of Economics, University of California, Irvine.

Debates about the significance of path dependence have erupted periodically in the economic history literature over the past two decades. The notion that early technological choices can result in lock-in and potentially inefficiencies has evoked strong reactions. Many are familiar with Paul David?s arguments concerning the QWERTY keyboard and the response by Stan Liebowitz and Stephen Margolis. The latter argued that market participants generally have perfect foresight and thus there were ample opportunities to avoid inefficient technological lock-in through advertising, ownership control, and other contractual measures. The concept of path dependence has since spread into the arena of institutions and social norms, although often it is not subjected to rigorous economic and historical analysis.

Douglass Puffert of King?s College, New York, advances the literature on path dependence through a fascinating new book on the dynamics of standardization in railway gauges. Railway gauges offer an excellent case study. Differing widths of railway track make it impossible or costly to exchange rolling stock like locomotives and wagons. Therefore neighboring railway operators can realize network integration benefits from adopting the same gauge. Inefficiency can arise in this setting for two reasons.? First, regional gauges can become the standard implying higher costs of inter-regional trade. Second, early choices can result in the adoption of a gauge standard which turns out to be inferior because it implies higher operating costs.?

Puffert?s book has two main parts: (1) a historical narrative on gauge selection and conversion and (2) an analytical framework for studying gauge choice and economic efficiency. The narrative is impressive in terms of its geographic coverage. Every region of the world is discussed. Britain and the U.S. are given more extensive treatment in part because gauge diversity was a more substantial issue in these two countries.? The historical narrative suggests three key periods. The first lasted from the 1800s to the 1840s and is best described as a period of initial experimentation. Several gauge widths were tried but it was not clear which was superior. Most governments and investors followed the advice of engineers who preferred certain gauges because of their experience. The most influential was George Stephenson, who used the 4 ft. 8.5 in. (1435 mm) gauge in constructing the Manchester and Liverpool railway during the 1820s. Stephenson?s gauge became the most common width among early railways, but others were tried ranging from 3 ft. 10 in. to 5 ft.? Interestingly it does not appear that Stephenson favored this width because of its advantages in steam locomotion.? 4 ft. 8.5 in. was apparently the gauge that Stephenson used in constructing mining tramways drawn by horses.?

The second period from the 1840s to the 1870s witnessed expanding diversity into broad gauges. By this time several prominent engineers advocated gauges ranging from 5 ft. to 7 ft. on the grounds that operating costs would be lower than the Stephenson gauge, especially on high volume routes. Gauge width became a contentious issue and spawned several pamphlets and government inquiries.? Through innumerable quotes, Puffert demonstrates that historical actors were aware of the potential losses from gauge diversity, but these were not sufficient to ensure standardization. Broad gauge regional networks emerged in places like the U.S. South or they became the basis for new networks as in Russia and India. In some cases idiosyncratic factors were at work in the expansion of broad gauges, but more generally it appears that broad gauge advocates were convinced that the savings from wider gauges outweighed the costs.? As it turns out the savings proved to be illusory and the costs associated with breaks of gauge mounted with time. By the 1870s many broad gauge networks were converted to the Stephenson gauge.

The third period lasting from the 1870s through the 1920s witnessed the expansion of narrow gauges from 2 ft. to 4 ft. The poor financial performance of many Stephenson and broad gauge railways gave rise to the view that costs might be lowered through the use of narrow gauges. Narrow gauges were built alongside broader gauge networks and were often government owned. Narrow gauges also became the standard on emerging networks in Asia and Africa. In Japan there was regret associated with the adoption of narrow gauges as traffic volumes grew. However, the adoption of narrow gauges appears to have been crucial in the expansion of railways to mountainous and other low traffic volume areas.

Puffert?s narrative convincingly dispels the extreme version of the Liebowitz and Margolis critique which argues that market participants had perfect foresight. On the other hand, it does suggest historical actors understood the role of positive feedbacks and tried to manipulate gauge adoption in an effort to lock-in their preferred standard. The degree to which gauge selection was efficient is a lingering question throughout the book.? Puffert does not take a stand on the relative efficiency of different gauges, but an argument is made that diversity entailed large costs.

Towards the end of the book, Puffert provides a model of gauge choice which yields outcomes that are then evaluated according to efficiency criteria. The model assumes emergent railways occupy cells on a lattice. Their objective function includes an idiosyncratic preference for one of two gauges and a network integration benefit that depends on past gauge choices of neighboring railways.? The model also includes as a second stage, the choice to convert to a new gauge given the structure that was adopted in the first stage. The model nicely illustrates how diversity can emerge because of early choices and how standardization can later emerge depending on network integration benefits and conversion costs. However, the model is not calibrated to investigate counter-factual histories of gauge adoption in specific countries. In my view, imposing some assumptions on network structure would yield insights. For example, early U.S. railways were built east-west to link the interior to the coast. Perhaps the inefficiency of gauges would be smaller in such a setting if east-west links all shared the same gauge.? Second, the model could be extended to allow for time-varying network integration benefits. Interregional trade tended to increase with time and thus it might have been efficient for a railway to adopt a variant gauge if its idiosyncratic preference was sufficiently strong compared to the discounted present value of future network integration gains.? In short, the efficiency of gauge selection remains an open issue. Readers might wonder whether additional insights could be gained from an estimation of a structural model along the lines outlined by Puffert.? More broadly, Puffert?s book should serve as a model for rigorous examination of path dependence.

Dan Bogart (Associate Professor, Economics Department, UC Irvine) has recently written ?A Global Perspective on Railway Inefficiency and the Rise of State Ownership, 1880-1912,? Explorations in Economic History (April 2010), as well as a work in progress on State Ownership, Regulation, and Railway Performance in India co-authored with Latika Chaudhary.

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