Determining an Earnings Basis for a Projection of Past and Future Lost Earning Capacity

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Thomas Ireland. (2013). Determining an Earnings Basis for a Projection of Past and Future Lost Earning Capacity. Journal of Legal Economics 19(2): pp. 47-64.
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Any projection of lost earning capacity in a personal injury case or of lost earnings of a decedent in a wrongful death action contains four basic elements. (1) At least one earnings base value from which values for earnings in future years will be projected. (2) A specification of growth rates (or possibly rates of decline) in earnings from the date of injury or death to the present, or a future date of trial, that are used to determine past losses. (3) A growth rate (or rates) and a discount rate (or rates) for the purpose of determining the present value of future earnings, or a net discount rate that combines both a growth rate (or rates) and discount rate (or rates) for that same purpose. (4) A specification time periods (usually years) over which the earnings loss will occur (or have a worklife probabilities of occurring). Much of the published literature of forensic economics focuses on different approaches economic experts have taken in dealing with (2), (3) and (4), but very little has been written about how economic experts go about and should go about determining basis earnings before (2), (3) and (4) are applied in projecting losses. The purpose of this paper is to provide extended discussion of different ways an economic expert can develop opinions about basis earnings. This paper will not discuss how projections are developed once base earnings figures are determined.
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Authors Thomas Ireland
Classification Earnings, Base Earnings, Business Valuation, Business Valuation and Lost Profits
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