Introduction
The purpose of this assignment is to report on the role of expert witnesses for providing economic reports and advise to both plaintiff and defense attorneys on cases that involve personal injury, wrongful death, employment disputes, healthcare loss analysis, and lost profits from business. The assignment includes a literature- and market-based overview of expert economic witnesses as well as a closer technical analysis of a case involving such testimony. A brief conclusion will summarize the findings of the assignment.
An Overview of Expert Witnesses in Economics
There are numerous contexts in which economists’ testimony is relevant to courts. However, in many cases, economists are called upon specifically to determine economic damages (Martin, 2012). Economic damages are often of interest in personal injury cases in which an individual has been hurt on the job and is claiming compensation, or in wrongful death cases (Clifford, 1998). Legally, personal injury and wrongful death cases can be viewed as torts, that is, civil wrongs that render the tortfeasor responsible for compensating tortious damages (Statsky, 2011).
In some scenarios, calculating tortious damages is a relatively simple matter; for example, someone whose negligence results in the destruction of a car is likely to be found liable for paying the owner of the car fair market value for the car (Statsky, 2011). However, in personal injury and wrongful death cases, the calculation of damages is considerably difficult, as what is being compensated is the future value of an injured or death person’s economic activity (Brookshire, Slesnick, & Ward, 2011). These calculations include not only lost wages and stock options but also hedonic damages (that is, damages intended to compensate for the loss of enjoyment of life), fringe damages, household services, and many other variables. In addition, any calculation of damages must subtract personal expenditures, taxes, and other life events (such as children reaching non-dependent status) when engaging in a lost earnings methodology (Weil, Lentz, & Hoffman, 2012). As if these considerations were not enough, the calculation of economic damages becomes even more difficult given that “in the United States a presentation of economic damages by a forensic economist is unique to each personal injury or death case, and is also unique to each jurisdiction” (Ward, 2009, p. 38).
The role of the forensic economist is all the more important given the unique approaches that exist within different legal jurisdictions in the United States. However, even given the unique nature of economic damages calculations, there are established methodologies and theories that guide forensic economists in forming their assessments. In fact, when handling numerous individual cases at once, there can be a great deal of standardization in the process of calculating economic damages, which increases the importance of pre-existing economic damages theories and methodologies. For existence, the Department of Justice of the United States adopted a standardized economic damages calculation methodology when determining payments under the heading of the September 11th Victim Compensation Fund of 2011 (U.S. Department of Justice, 2001). Examining the methodology utilized by the U.S. Department of Justice helps to illustrate that, while economic theory and practice have much to contribute to the practice of determining economic damages, some elements of economic damages—in particular non-economic damages—are convenient fictions. For example, the U.S. Department of Justice established a uniform amount of $250,000 to represent the pain and suffering of each person who died in the September 11th terror attacks (U.S. Department of Justice, 2001, p. 40). Even the Department of Justice acknowledged that setting this amount represented “the unfathomable task of placing a dollar amount upon…pain” (U.S. Department of Justice, 2001, p. 40). The same limitation has been acknowledged by economists who specialize in hedonic damages (Berla, Brookshire, & Smith, 1989), which is why, in many cases, hedonic damages calculations are based on past precedent rather than on the presentation of some empirical method of calculation (U.S. Department of Justice, 2001, p. 40). Understandably, forensic accountants add more value when building models based on tangible inputs (such as wages, stock compensation, insurance policies, &c.) and tangible outputs (such as taxes, consumption, and other expenses).
An Example of Economic Damages Calculations
A simple example of economic damages calculations can help to illustrate the role played by forensic economists. Hall and Lazear (1993) presented some formulae and calculations based on economic damages in the realm of intellectual property cases in which one company’s infringement of another company’s property leads to damages.
Lost profit = [price but for intellectual property infringement] x [quantity sold but for intellectual property infringement] – [actual revenue] – [extra cost of producing the extra quantity]
While this formula was designed to apply in intellectual property cases, its principles apply to personal injury and wrongful death cases in well. In each of these scenarios, there is an economic agent (either an individual or an organization) who, but for some act—whether wrongful death, personal injury, or copyright infringement—would have made some amount of money. The task of the forensic economist is to determine what this amount of money would have been, taking into account the kinds of factors discussed earlier in this essay.
To arrive at the most accurate sum of economic damages, forensic economists typically work on an annual basis. If earnings and debits (such as taxes, expenditures, &c.) are calculated on an annual basis, then it is possible to apply discount factors and arrive at a net present value (NPV) for losses that extend several years into the future. Hall and Lazear (1993, p. 518) presented a very simple example of such an approach applied to a company that incurred a loss based on another company’s infringement of intellectual property.
Table 1
Sample Damages Analysis (in Millions of Dollars)
Year Earnings but for Misconduct Actual Earnings Loss Discount Factor Discounted Loss
1992 187 34 153 1.21 185
1993 200 56 144 1.14 164
1994 213 45 168 1.07 180
1995 227 87 140 1.00 140
1996 242 96 147 0.96 141
1997 259 105 153 0.92 142
1998 276 116 160 0.89 142
1999 294 127 167 0.85 143
Total 1,237

One of the many ways in which forensic economists add value to calculations of this sort is to determine ‘but for’ earnings, for example, by using regression (for organizations or individuals with steadily increasing income), running averages, or other means. It also requires considerable thoroughness and investigative acumen to determine likely individual expenditures given different earning levels at different stages of life.
Conclusion
The purpose of this assignment was to report on the role of expert witnesses for providing economic reports and advise to both plaintiff and defense attorneys on cases that involve personal injury, wrongful death, employment disputes, healthcare loss analysis, and lost profits from business. The assignment included a literature- and market-based overview of expert economic witnesses as well as a closer technical analysis of a case involving such testimony. The conclusions reached in the assignment were as follows:
• The calculation of economic damages in the United States is complicated by jurisdictional differences
• The central premise of economic damages is the determination of ‘but for’ earnings, that is, earnings that would have achieved but for some intervening attempt such as personal injury, wrongful death, or copyright violation
• The expertise contributed by the forensic economist lies in applying theories and methodologies to arrive at the most accurate, often year-by-year calculation of but-for earnings that can be used as the basis for awarding damages
These factors render the work of forensic economists highly important in American court settings.






References
Berla, E. P., Brookshire, M. L., & Smith, S. V. (1989). Hedonic damages and personal injury: A conceptual approach. Journal of Forensic Economics, 3(1), 1-8.
Brookshire, M.L., Slesnick, F., & Ward, J.O. (2011). The plaintiff and defense attorney’s guide to understanding economic damages. New York, NY: Lawyers & Judges Publishing.
Clifford, R.C. (1998). Qualifying and attacking expert witnesses. Costa Mesa, CA: James Publishing.
Hall, R.E. & Lazear, V.A. (1993). Reference guide on estimation of economic losses in damages awards. Retrieved from https://bulk.resource.org/courts.gov/fjc/sciam.2.econ_loss.pdf
Martin, G.D. (2012). Determining economic damages. Costa Mesa, CA: James Publishing.
Statsky, W. (2011). Essentials of torts. New York, NY: Cengage.
U.S. Department of Justice. (2001). Final report of the special master for the September 11th Victim Compensation Fund of 2011. Retrieved from http://www.justice.gov/final_report.pdf
Ward, J.O. (2009). Economic damages and tort reform: A comparative analysis of the calculation of economic damages in personal injury and death litigation in the United States and the United Kingdom. In J.O. Ward and R.J. Thornton (Eds.), Personal injury and wrongful death damages calculations: Transatlantic dialogue (pp. 35-72). New York, NY: Emerald.
Weil, R.L., Lentz, D.G., & Hoffman, D.P. (2012). Litigation services handbook: The role of the financial expert. New York, NY: John Wiley & Sons.