Technical Note: Kelly, O’Shea and Pfeifer: What Guidance Is Given for Discount Rates?

Ireland, Thomas R. 2007. “Technical Note: Kelly, O’Shea and Pfeifer: What Guidance Is Given for Discount Rates?”  The Earnings Analyst  9: 80-89.


Most forensic economists are generally aware of the guidance given by the United States Supreme Court in Jones & Laughlin Steel Company v. Pfeifer (1983) with respect to the selection of discount rates, the three methods of calculation discussed in that decision, and the level of scrutiny that will be applied. Parts of that decision, however, are misunderstood as the result of not considering two antecedents of the Pfeifer decision. The “best and safest” language that described risk levels for discount rates in Pfeifer came from the United States Supreme Court decision in Chesapeake & Ohio v. Kelly (1916). The methodology being considered in Pfeifer may have come from or been influenced by a decision of Judge Richard Posner for the 7th Circuit in O’Shea v. Riverway Towing (1982) that was reached one year earlier than Pfeifer. This short paper reviews the impact and possible impact of Kelly and O’Shea on how the guidance on selection of discount rates and “below market” discount rates in Pfeifer should be understood by forensic economists.


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