TEA: Volume 9 (2007)

TEA.9.0 – 2007. The Earnings Analyst 9: 120pp.

TEA.9.1 – A Review of Economic Foundations of Earnings and Discounting Theories Used in Forensic Economics.  Gary R. Albrecht and Kurt V. Krueger.  In this paper, we review the economic foundations for earnings and discounting procedures used in forensic economics. The purpose of this unified presentation of generally accepted economic principles is to (a) provide documentation for the common economic conclusions derived by forensic economists, and (b) advance the appreciation and acceptance of the science of forensic economics. The format of the presentation is that the economic concept or principle is stated. The statement is followed by the commonly accepted economic theory that supports the principle. A brief discussion of the implications follows the theoretical presentation. Following the conclusion is a comprehensive list of references to the published literature that support the economic theories contained within the paper.

TEA.9.2 – Valuing Advice, Counsel and Companionship between Parents and Adult Children.  Thomas R. Ireland.  This paper addresses efforts to provide pecuniary values for the services provided by adult children to their parents and parents to their adult children. It reviews the currently existing literature in forensic economics with respect to the dollar valuation of losses of such services. It considers the meaning of “pecuniary damages,” as that term is used in legal decisions. It considers at some length the decisions of the U.S. Supreme Court in Michigan Central Railroad v. Vreeland (1913) and the New Jersey Supreme Court in Green v. Bittner (1980). It discusses the methods used by Frank Tinari and Stan Smith to project such damages and argues that such calculations, in most instances, are too speculative to be meaningful. It also provides an extended appendix consisting of descriptions of legal decisions that have bearing on the question of how forensic economists might value relational losses affecting parents and adult children.

TEA.9.3The Role of Vocational Consultants in Small Business Valuations.  J. Matthew Sims.  Sometimes in personal injury and wrongful death cases, the plaintiff is a self-employed individual. In addition to lost profits and other economic damages claimed and evaluated, there may also be a loss to the value of the business. The business valuation aspect of a case is typically assigned to a business appraiser, who may estimate the owner’s or a potential owner’s earning capacity. Unfortunately, the earning capacity of the individual is sometimes confused as dividends, or fair compensation is used instead of the individual’s earning capacity. When this occurs, the business valuation’s construct validity diminishes. As such, there is a role in the small business valuation process that the vocational consultant can undertake.

TEA.9.4Technical Note:  Kelly, O’Shea and Pfeifer: What Guidance Is Given for Discount Rates?  Thomas R. Ireland.   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.

TEA.9.5Technical Note: Calculating the Present Value of an Ordinary Annuity.  Kevin S. Marshall and Mariam Margaryan.    Forensic economic analysis involves the estimation of past and future value. In the realm of a personal injury lawsuit, such estimation typically focuses on the loss of past and future streams of income. The ultimate focal point of any settlement or judgment is the present value of alleged future streams of income allegedly lost due to a wrongful intervention triggered by an accused defendant. This technical note provides a brief review of the conventionally accepted methodology referenced in most economic and finance textbooks, as well as utilized by analysts when estimating the present value of a future stream of income.