TEA: Volume 15 (2016)

TEA.15.0 – 2016. The Earnings Analyst 15: 86pp.

TEA.15.1 – Tailoring.  Edward Foster and James D. Rodgers.  Courts in personal injury, wrongful death and employment law cases encourage economic damage experts directly and indirectly to fit their economic damage appraisals closely to the facts of the specific case, which is perhaps the broadest meaning of the term “tailoring.” The purpose of this paper is to explore a number of questions about tailoring. Why are some kinds of tailoring generally accepted, frequently encountered, and appropriate, while other kinds of tailoring are encountered less often and controversial? We briefly consider some of the myriad characteristics and circumstances that could be a potential basis for tailoring. We also consider issues raised by tailoring to qualitative factors for which no numerical measure of impact is available. Finally, from our discussion of tailoring for particular variables and particular kinds of cases, we develop some generalizations about tailoring.

TEA.15.2 – Demonstrating Lost Earnings: Algebraic vs. Spreadsheet Method.  Frank D. Tinari.  Economic damages experts use computerized spreadsheets to make their calculations of lost income or financial support in civil tort cases. However, spreadsheets can be lengthy, and often are not clearly understood by the average juror. But spreadsheets are not the only way of demonstrating an economist’s calculations. The “best” method, if there is such a thing, effectively communicates with the readers of one’s report and, ultimately, if the case should go to trial, with jurors. Another way to express mathematical relationships is in algebraic form. This approach may not be widely used or understood, so the purpose of this article is to explain and contrast the algebraic method with the standard spreadsheet format. The algebraic method is a different, perhaps superior, means of effectively communicating with a jury. Notably, it does not require experts to give up their spreadsheets. Rather, by introducing arithmetic relationships as a preceding step, the resulting spreadsheet becomes much simpler, gaining substantial clarity in the process.

TEA.15.3Integrating Dividends, Interest and Value in Commercial Damage Cases: Toward a Comprehensive Methodology.  Christopher Warren Young.  This article suggests that economic experts should consider moving away from accrual based, accounting centered lost profits and toward cash based lost dividends when calculating economic damages in cases where shareholders are looking to recoup past lost profits. The discussion here is limited to commercial damage claims where lost profits are the measure. It is shown here that when experts rely on cash dividends as the variable of loss to shareholders, a more comprehensive, integrated and just system of calculation is recognized, increasing economic certainty in damage reports and possible subsequent verbal testimony.

TEA.15.4Term-to-Maturity and the Discount Rate.  Peter Formuzis.    The term-to-maturity of a plaintiff’s investment plays an important role in its capacity to replace future losses in the amounts and at the times those losses are anticipated to occur. Typically, yield curves are upward sloping so that extending maturity results in higher interest rates. However, the reach for yield is not costless. Extending maturity increases the degree of lock-in and the standard deviation in the total rate of return. The optimum maturity is one where the marginal benefit of higher interest rates gained from extending maturity equals the marginal cost associated with greater lock-in and standard deviations in the total rate of return. The evidence presented in this paper argues for short to medium term maturities in the range of 3 months to 5 years, given the uncertainty over what future interest rates and inflation will be.

TEA.15.5Discount Rates for Determining the Present Value of Different Types of Pecuniary Damages.  Joseph Rosenberg, Rob Schlegel, and Allyn Needham.    Experts providing economic damages for litigation usually must provide future damage amounts or future cash flows in the form of present value. To make such a calculation, the expert must not only be aware of the mathematics in applying the appropriate formulas but the methods generally accepted by the courts. That expert should also be aware of other methods which could have been used and criticisms regarding those methods. This article provides a discussion of commonly used techniques and alternative methods for calculating present value in forensic situations. Although not comprehensive, it highlights areas of consensus and disagreement in the forensic economic community. Realizing that in most cases the expert decides on the discounting method to be used, this article provides information and resource data to assist experts in making such decisions.