Cross Exam of Defense Forensic Economist

This cross examination discussion is taken from my cross examination notes in a recent survival action economic loss case.

The Forensic Economist. Agree the forensic economist develops estimates for numerous variables that affect the ultimate recovery in tort cases. Agree in a survival action these variables are: choice of base earnings, choice of earnings growth rate, valuation of fringe benefits,  estimation of personal consumption, and choice of discount rate.

Base Earnings Rate. Defense forensic economists will start as low as possible. When they begin too low cover how the low base rate was arrived at and why a low base rate will lead to a lower economic loss amount. Demonstrate the rate of pay at which the economist should have started.

Earnings Growth. Another way the defense economist can understate economic damages is by way of the “earnings growth rate.” Earnings do not grow in a linear manner until retirement. Typically they peak about ten years before retirement. Here time must be spent with plaintiff’s economist to determine and understand a fair economic growth rate. When the defense economist fails to do this and understates growth this is demonstrated in cross examination.

Fringe Benefits. The defense economist will likely start with a low base income rate and fail to add fringe benefits. “Data from the last few decades reveals that fringe benefits have increased significantly as a percentage of overall compensation. These benefits now account for almost 30%… of total compensation. ,,, Damage calculations must therefore include a valuation of fringe benefits.” David Gordon, A Forensic Economics Primer (Journal of Comprehensive Research).

Consumption. The defense economist will likely try to overstate personal consumption. This is because the amount of personal consumption is deducted from lifetime earnings before the discount rate is used to arrive at net economic loss. Future earnings of the deceased are adjusted for his consumption. See id. at 44-45. Consumption covers expenditures on goods and services, but does not include joint family expenditures. When possible the economist will look to actual expenses, but this does not work in the case of a young decedent. Have an understanding of how your economist is addressing personal consumption, and make sure it is solid. Hold the defendant economist to a similar analysis to prevent his getting away with overstating consumption which results in understating net economic loss.

Discount Rate. The United States Supreme Court in Jones & Laughlin Steel Corp. v. Pfeifer, 462 U.S. 523 (1983) addressed the issue of the proper discount rate in a personal injury case involving future economic loss. The Court reasoned in all personal injury cases involving future economic loss “it is reasonable to suppose that interest may safely be earned upon the amount that is awarded. Id. at 537. Thus, the ascertained future benefits should be discounted. The Court pointed out the discount rate should be one earned on the best and safest investments. Id. The injured plaintiff is “entitled to a risk-free stream of future income to replace his lost wages; therefore, the discount rate should not reflect the market’s premium for investors who are willing to accept some risk of default.” Id. The Court concluded the amount of future economic loss must encompass the amount the injured plaintiff would have earned during each year he could have worked but for his injury and the appropriate discount rate “reflecting the safest available investment.” Id. at 538. Always have  the Jones case at hand when cross examining the defense economic expert. This is because the defense expert will likely use a high discount rate arrived at at least partially from stock market return rates. Remember, the higher the discount  rate the lower the net economic loss amount.

    One Response to “Cross Exam of Defense Forensic Economist”

    1. Ian Vest says:

      Have to say you share wonderful opinions.

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