First, Let's Assume We Have a Can Opener: An Analysis of the Economics of a Single North American Barley Market

Summary

In summary, it has been shown that the results of the Carter paper are driven, not surprisingly, by the assumptions that were fed into the model used. In addition, it has been shown that many of the assumptions are highly questionable or unrelated to the problem, and therefore limit the applicability of the findings to any “real-world” prescriptive analysis.

The Carter study does not model a change from a single-desk selling structure to a multiple seller environment. It simply assumes:

feed barley yields increase,

U.S. demand for feed barley increases by 500,000 t and malting barley demand increases by 400,000 t,

all barley shipments to maltsters bypass the primary elevator system, and

malt selection rates are increased by 50%.

Any one of these assumptions would lead an economic model to a result of higher net producer income. Carter, however, fails to connect these assumptions to the institution of a CBM. Further, the modeling errors created in trying to “customize” the CRAM model for this use clearly invalidate the results. There are serious flaws in the structural modeling of how a competitive market for malting barley would operate in North America and they invalidate the Carter's results regarding the prices, producer returns and production of malting barley under the CBM scenario.

While it is an interesting academic exercise to examine the possible economic impacts of a policy change by “shocking” an economic model, it is quite another matter to represent the results of such an endeavor as being “an exhaustive and definitive analysis of the issues” (Carter 31 March 1993). Besides the questionable assumptions and modeling errors of this paper, the author clearly misrepresents the power and accuracy of mathematical economic modeling.