The practice of forensic economics has a long history of trying to identify the correct interest rate to use when valuing economic losses in personal injury and wrongful death cases. We trace the legal history as it relates to the appropriate interest rates and adjustments for inflation. We then discuss the use of Treasury Inflation Protected Securities, TIPS, and an analysis of the combined effect of realized inflation and taxes on the effective return. We come to the unexpected conclusion that the use of TIPS does not lend itself to a simple adjustment to the rate for taxes nor eliminate the need to consider expected inflation.Abstract
Contributor Notes
*Respectively, Professor Emeritus of Economics, Associate Professor of Finance, and Professor of Finance, College of Business and Public Administration, Old Dominion University, Norfolk, VA. The authors wish to thank three anonymous reviewers who suffered through two revisions to help us remove much of our initial bias, clarify muddled explanations, and tone down our claim to originality.