Protection against a capricious state: French investment and Spanish railroads, 1845-1875

Infrastructure construction is often associated with excessive, even corrupt, profits. This article argues that construction profits earned in Spanish railroads in the mid-nineteenth century were a response to the lack of credibility of the Spanish state. It also makes the first attempt to document excess construction profits in Spanish railroads by demonstrating, for example, financial links between railroad stockholders and the providers of construction goods and services and by directly estimating construction profits. The estimated excess construction profits only provided railroad entrepreneurs with a normal rate of return to their entire railroad-related investments.