Estimating the Economic Loss of a Sole Proprietor: An Analysis of Alternative Methodologies

Mathis, Edward J. and Judith Ann King. 1999. “Estimating the Economic Loss of a Sole Proprietor: An Analysis of Alternative Methodologies.” The Earnings Analyst   2: 35-54.


When an economist is called upon to serve as an expert witness in calculating the lost earnings of a sole proprietor of a closely held business (self-employed individual), strong forces pull in different and occasionally opposite directions. While equality under the law might suggest that a single formula be established and applied to all cases, justice demands that the unique nature of the individual’s ability and effort levels be recognized. To this end, the forensic economist is to use relevant and reliable data, as well as a relevant and reliable methodology to assess to value of the loss. This paper is divided into three sections. The first section delineates the economic components of the loss. The second section considers the completeness, relevance, and reliability of four methodologies suggested in current literature. The third section presents economic value added, economic value added (EVA) (a proprietary valuation methodology that is similar to economic profit and trademarked by Stern Stewart), and evaluates this approach on the same criteria. Following the third section, in appendix B, is a comparison of the results produced by each method of calculation.


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