Abstract

Valuing damage awards for personal injury or wrongful death requires the application of finance theory to achieve a practical result. Methods for discounting future earnings losses fall into two major categories: Current market rates, which offer greater objectivity, and historical rates, which theoretically offer greater stability of results by averaging away the effect of often volatile “current” market conditions.

The purpose of this paper is to provide a unique ex post comparison of damage awards using distinctive current and historical rates methods that highlight the inherent differences between the two major discounting alternatives. Current market rates methods are represented by a Treasury bond ladder with no instrument rollover, using initial market rates for both discounting and investing damage awards. Historical rates methods are represented by intermediate term government bonds; historical average five-year Treasury yields are used for discounting the damage award, with annual bond rollover required afterwards to maintain the award investment in comparable instruments, creating realized total returns from investing. These alternative methods are compared, ex ante in terms of the present value of the awards, and also ex post, in terms of how well each method's award, based on the same projected lost earnings, is able to support paydowns based on actual lost earnings.

Key findings include: (a) both methods result in widely varying lump sum awards; (b) the idea that historical rates offer greater stability of results over time is empirically unsupportable; (c) that a good measure of methodological accuracy is the relative variance in award present values observed by first discounting and then subsequently investing under each method using the same instruments; (d) that different economic conditions greatly affect the relative ex post accuracy of each method; and (e) that neither method is very accurate in projecting present value of earnings losses upon ex post analysis.

Abstract

Kurt Krueger's paper on “Personal Consumption and Single Persons” (2011) identifies five approaches for determining the amount that should be subtracted from the income of wrongfully killed single persons living in single person households to account for the personal expenses of those single persons when calculating economic damages in wrongful death circumstances. However, none of Krueger's methods are useful in the large majority of states with conventional Wrongful Death Acts. The reason is not flaws in Krueger's calculations, but flaws in Krueger's understanding of what is required in Wrongful Death Actions.

Abstract

The book being reviewed was written by a vocational expert. Dr. Shahnasarian has a Ph.D. in counseling psychology from Florida State University and is president of Career Consultants of America, Inc. located in Tampa, Florida. As such, the book is of greatest interest to other vocational experts. Nevertheless, since vocational experts work so closely with forensic economists in many cases, the book is potentially useful to economists as well.