A Solution to Problems Arising from Inflation When Determining Damages

Document Type

Article

Department or Administrative Unit

Economics

Publication Date

6-1978

Abstract

Inflation has been of great concern to most Americans in recent years. Inflation and the resultant rapid increases in earnings have also posed specific problems and concerns to economists and actuaries who are involved in computing economic losses in personal injury and death suits.
For settlement purposes, economists project future earnings losses and then discount them to present value. Inflation has made it more difficult for economists to forecast future earning losses accurately; unless future earnings are properly projected, injured parties may not receive due compensation to which they are entitled by law.
Actuaries seem to be concerned that inflation not only leads to higher future earnings, but that these inflated higher earnings result in settlement payments in current hard dollars for future soft or deflated dollars. The objective of this paper is to analyze the effects of inflation on the present value of future earnings in light of legal constraints and economic findings and to suggest an approach which mitigates the problem that inflation poses to economists and actuaries who are involved in computing economic losses.

Comments

This article was originally published in The Journal of Risk and Insurance. The full-text article from the publisher can be found here.

Due to copyright restrictions, this article is not available for free download from ScholarWorks @ CWU.

Journal

The Journal of Risk and Insurance

Link to Full Text

Share

COinS