A forensic economics method is the documented procedure that turns a person's or a business's records into a damages figure: the base earnings or cash flow, the projection period, the growth and discount rates, and the offsets that reduce the loss. Each method page below states what the method answers, the published data it draws on, its limits, and how it has fared when challenged, so counsel on either side can test the figure line by line.
All methods
Present Value and Discounting - Present value converts a projected stream of future losses into the single sum that, invested today at a stated rate, would replace those losses as they come due. The economist selects a discount…
Worklife Expectancy - Worklife expectancy is the number of additional years a person of a given age, sex, education, and labor force status is expected to be employed or actively seeking work over the rest of a lifetime…
Wage Growth and Earnings Projection - An earnings projection starts from a documented earnings base and carries it forward over the worklife horizon with a growth rate that reflects general wage inflation, the person's stage of career…
Fringe Benefits Valuation - Fringe benefits are the part of compensation paid in something other than wages: employer contributions to health insurance and retirement plans, legally required payroll contributions, paid leave…
Household Services Methodology - Household services are the unpaid work a person performs for the household: cooking, cleaning, shopping, home and yard maintenance, household management, transportation, and care of children or…
Business Valuation Approaches - A business interest is valued under three recognized approaches: the income approach, which converts expected future cash flows into a present value; the market approach, which draws on prices paid…
Lost Profits and But-For Analysis - Lost profits measure the difference between the profits a business would have earned had the wrongful act not occurred and the profits it actually earned or will earn. The economist builds the…
Mitigation and Offsets - Mitigation and offsets are the deductions that turn a gross loss into a net loss: the earnings the person has earned or can reasonably earn after the event, the profits a business recovered, and…
Personal Consumption Deduction - A decedent would have spent part of the household's income on personal needs, and the survivors' loss of support excludes that share. The personal consumption deduction is the percentage of income…
Earnings Growth Rate Selection - The growth rate is the annual percentage by which the economist carries a documented earnings base forward over the projection, and it has three possible components: general wage inflation, which…
Total Offset Discounting - The total offset method is a present value convention under which the rate at which future losses would have grown and the rate at which they are discounted are assumed to be equal, so the two…
Below-Market Discount Rate - The below-market discount rate is a present value convention under which future losses are projected without the inflation component of wage growth and discounted at a real rate of return, the yield…
Age-Earnings Profile - The age-earnings profile is the pattern of average earnings by age for workers who share an education level, an occupation, or both: earnings rise steeply through the twenties and thirties as skills…
Transfer Pricing Methodology - Transfer pricing methodology is the set of methods used to test whether a price charged between companies under common control matches what unrelated parties would have agreed to. Some methods…
Reasonable Royalty Methodology - A reasonable royalty is the license fee a willing licensor and a willing licensee would have agreed to for the use the infringer made of a patent or a trade secret, negotiated hypothetically as of…
Capitalization of Earnings - The capitalization of earnings method values a business by dividing a single representative measure of its earnings by a capitalization rate. The earnings figure is the level the business can be…
Discounted Cash Flow - The discounted cash flow method values a business as the present value of the cash flows it is expected to produce: a year-by-year projection over a discrete period, a terminal value for the years…
Yardstick and Before-and-After - The before-and-after method and the yardstick method are the two ways an economist establishes the revenue a business would have earned but for a wrongful act using evidence from outside the…