GIPSA's Evidence, What Will It Really Say?

January 26, 2007

In February GIPSA will release a long awaited study that includes analysis of the effect of captive supplies on prices. The contracted economists have completed their work and the GIPSA offices are reviewing the study before release. Whatever the result of the analysis, the study has a major flaw.

In the recent reorganization of GIPSA that is still under way with James Link at the helm, the agency now incorporates legal counsel assistance early in an investigation rather than later. This recommendation came from an investigation done by the OIG and echoed a recommendation by a GAO study done in 2000. These changes make sense.

The reason they make sense is that when an economist does an analysis to determine whether captive supplies affect price they use a standard of proof of academic certainty. In other words they will not declare a correlation unless the evidence says that such a relationship is virtually absolutely certain. In contrast, in a criminal court the standard of proof is "beyond a reasonable doubt." Civil litigation requires a lesser standard, needing only a "preponderance of the evidence" to find for one side or the other.

The danger of having an academic study that has not incorporated legal counsel is that the analysis will likely require the academic standard of proof, not the legal one. The published study could then be used by packer defenders to show that captive supplies do not affect the market, when in fact a preponderance of the economists' evidence may have shown that very thing. But with such a high evidentiary standard, the conclusion (absent legal counsel) will say otherwise.

The study could also be used as a basis for determining preventive regulatory action. Such action should only require a standard lower than that of civil court, but if the agency fails to recognize the difference between these evidentiary standards no action will be taken.

This same study will likely be used in any upcoming debate in Congress regarding bills or investigations into the effects of captive supplies. Absent a clear understanding of the different standards of evidence employed, Congress will be prone to heading in the wrong direction.