Forensic Economics Research Articles

Cold Case: The forensic economics of energy efficiency labels for domestic refrigeration appliances

Energy-efficiency labels are intended to better inform consumers at the point of sale about unobservable product characteristics. The EU Energy Label is globally one of the largest labeling schemes and obligates manufacturers of white goods to self-certify the energy efficiency index (EEI) of their product. The integrity of the scheme is reliant on manufacturers' compliance with the certification protocol and accurate declaration of the certification results. I construct a database that contains the testing data of 212 refrigeration devices sold on EU markets before and after the introduction of the label and compare self-reported and third-party verified EEIs. I find that under the label (1) there is evidence for bunching in self-certified EEIs, but not in verified EEIs, pointing to misreporting; (2) for the average model, self-certified EEIs understate equivalent energy consumption by 13 to %; (3) understatement clusters at class boundaries; and (4) well over half of the reporting discrepancy can be attributed to systematic factors rather than error. This can explain a significant share of the so-called 'Energy Efficiency Gap.' Before the introduction of the label, there is no evidence for bunching and substantially less underreporting of energy efficiency performance. In its current implementation, the EU Energy Label therefore plausibly induces misreporting, partly negating the intended information gains and impacting negatively on information-attentive consumers.

A Forensic Economics Approach to Reparations

A Forensic Economics Approach to Reparations

Economic Category of 'Value' in Criminal Law and Forensic Science

The main provisions of Criminal Law relating to the economic category of ‘value’ are discussed in the article. Text analysis of the Criminal Code of the Russian Federation indicates the need for a uniform understanding of this category, regardless of the criminal law. During the investigation and trial of many types of crimes appraisement is signifcant and needs a deeper comprehension. While appointment, production and evaluation of forensic examinations, the resolution of which raises the question of valuation, inevitable complications arise due to the intricacy of determining the content of the specialized knowledge necessary for their implementation. The main provisions of Criminal Law relating to the economic category of ‘value’ as well as the interpretations of the Supreme Court of the Russian Federation concerning value determination in the Criminal Law are discussed in the article. The inadmissibility of forensic appraisal examinations appointment and conduct is justifed, since the goals and norms of the legislation on appraisal and appraisal activities do not always correspond to the tasks and methods of forensic expert valuation of goods, services, cultural values. The necessity of development of new and improvement of existing forensic expert valuation methods in the framework of such examinations as forensic product examination, forensic economics, construction forensic etc. is presented.

Consumer Expenditures and Savings in High Income Households

Abstract A review of the existing academic literature as well as available government publications reveals a lack of information regarding expenditure behavior of high income households. In this paper, we combine multiple years of Consumer Expenditure Survey Public Use Microdata provided by the Bureau of Labor Statistics (BLS) and compute average expenditures and standard errors. We apply the same methodology used by the BLS to estimate the average expenditures by household income and household size for households with income of $70,000 and higher. The resultant tables provide details on consumption and saving patterns for higher income groups that are unavailable in the tables published by the BLS. Our tables can be utilized by forensic economists in practice for the determination of consumption and savings values in wrongful death matters in high income households.

Staggered Wage Net Discount Rates: Comment

Abstract Bauman and Schap have a history of studying the statistical properties of net discount rates. In this Journal, Baumann and Schap (2018) recently examined wage net discount rates (WNDRs) constructed from January 1980 to May 2016. This comment is intended to open discussion as to why there is a disconnect between WNDR science such as Bauman and Schap and many of the WNDRs that appear in the practice of forensic economics.

담합입증과 경제분석: 경쟁당국의 활용

담합입증과 경제분석: 경쟁당국의 활용

Corrigendum: Review of Oxford Handbook of Professional Economic Ethics by George F. DeMartino and Diedre N. McCloskey Reviewed by Anne Krueger

In the March 2017 issue of this journal (Volume 55, Number 1), review of George F. DeMartino and Diedre N. McCloskey’s (eds.) Oxford Handbook of Professional Economic Ethics as reviewed by Anne Krueger, it was erroneously stated that the authors of the chapter on forensic economics, Robert Thornton and John Ward, had advocated using laymen instead of experts to assess damages in court cases. They did not do so.

INTERNATIONAL COOPERATION IN FORENSIC ECONOMICS: PROBLEMS AND SOLUTIONS

The paper addresses the issues of quality assurance in forensic operations, as well as harmonization and convergence of expectations regarding the ways in which forensic economics can serve the interests of justice, given the varying economic contexts in countries that use different accounting systems. It is observed that even within the same country there may be differences in the way individual public agencies understand the objectives of forensic investigation into economic matters. However, despite existing disagreements, it is still crucial to search for common ground and work towards their reconciliation, drawing on international experiences and other countries' perspectives in the field of forensic practices. The authors propose building a list, or a glossary of key terms as a first step towards a shared theoretical framework in the field of forensic economics.

Forensic Economics: Assessing Personal Damages in Civil Litigation

Forensic Economics: Assessing Personal Damages in Civil Litigation

Do basketball scoring patterns reflect illegal point shaving or optimal in-game adjustments?

This paper develops and estimates a model of college basketball teams' search for scoring opportunities, to provide a benchmark of the winning margin distributions that should arise if teams' only goal is to win. I estimate the model's structural parameters using first‐half play‐by‐play data from college games and simulate the estimated model's predicted winning margin distributions. Teams' optimal state‐dependent strategies generate patterns that match those previously cited as evidence of point shaving. The results suggest that corruption in NCAA basketball is less prevalent than previously suggested and that indirect forensic economics methodology can be sensitive to seemingly innocuous institutional features. Forensic economics estimating dynamic games point shaving C61 K42 L83

Staggered Wage Net Discount Rates:Accounting for Possibly “Sticky” Wages

Abstract Schap, Baumann and Guest (Journal of Forensic Economics December 2014) report the time-series properties of wage net discount rates for the period 1981.01-2012.12, formulated on the basis of contemporaneously observed wage growth rates and various discount rates (determined by yields on U.S. Treasury notes of differing maturities). Gerald D. Martin (Determining Economic Damages, various editions) has noted the relatively rapid response of interest rates to economic stimuli compared with that of wages, which, being somewhat institutionally driven, respond with a lag. Of course, Martin was not the first to observe or mention these phenomena, but he does relate the phenomena specifically to the suitability of forensic economic application of wage net discount rates as typically derived (i.e., using contemporaneously observed wage growth rates and discount rates). The present study takes account of wage growth rates influenced by possible institutional factors by lagging the time frame of their observation relative to discount rates when the two are combined to form what we term “staggered” wage net discount rates. The staggered net rates constructed for the post-1980 era are then examined for stationarity and magnitude. The choice of lag structure for the staggering is empirically determined, but in conjunction with lag durations suggested by the macroeconomics literature on “sticky” wages. The reported results should be of interest to forensic economists that use wage net discount rates as well as critics of their use.

2017 Survey of NAFE Members: Their Methods, Estimates, and Perspectives

Abstract In January 2017, 565 e-mail invitations to complete an electronic survey were sent to NAFE (National Association of Forensic Economics) members, with libraries and attorneys excluded. The return rate was 33.1%. The survey covered many of the major topics included in earlier surveys, such as values of important economic variables (e.g., discount rates), trends in the practice of forensic economics (e.g., personal sources of earnings), and open-ended questions concerning ethics and reactions to the survey instrument. The survey also included several new or reworded questions, including a series of questions regarding members' education and level of professional activity designed to enhance their knowledge related to forensic practice.

Retirement-Related Economic Damages Calculations and the Fair Calculations in Civil Damages Act of 2016

How would the Fair Calculations in Civil Damages Act of 2016 (the “Act”) impact economic damages calculations related to the retirement process? The Act covers discrimination based on race, ethnicity, gender, religion, or actual or perceived sexual orientation. This paper focuses on gender discrimination and explores how imposing gender-neutral worklife and earnings tables, per the Act, would impact earnings and pension calculations in cases involving economic damages. We compare damages calculations under three scenarios: 1) a gender-specific approach, 2) a gender-neutral approach (per the Act), and 3) a gender-specific approach that takes into account the unexplained portion of the male-female earnings gap. The latter approach serves as a “free of bias” benchmark under the assumption that the unexplained portion of the gender wage gap is due entirely to discrimination. Generally speaking, we find that the Act’s broad-brush attempt to correct for possible gender discrimination would introduce more distortions than it would resolve, and likely exacerbate the degree of discrimination in economic damages calculations. A more effective approach to address the possibility of gender discrimination is to allow forensic economists to take gender into account (or not) on a case-by-case basis.

The Gender Wage Gap and the Fair Calculations Act

If enacted as a law, the Fair Calculations Act would require forensic economists to ignore an injured party’s gender when forecasting the loss in future earnings. We discuss how this would affect the size of awards for men and women, and some of the issues that would arise if the law is enacted. Of particular interest is the extent to which gender-differences in earnings, earnings growth, and work-life expectancy are the result of sex-discrimination in labor markets as opposed to sex-differences in preferences. We present evidence that gender differences in human capital characteristics explain a large share of gender differences in in labor market outcomes, there is considerable disagreement about how to interpret the results. We also show that gender differences are diminishing over time, but it is not likely that the gap will disappear in the near future. Finally, we discuss how forensic economists may have to rely on additional information when forecasting earnings if they are no longer allowed to use gender.

Professional Identity and Dishonest Behavior

This essay discusses the fraud triangle, or how factors such as opportunity to cheat, motivation to cheat or ability to rationalize or justify dishonest behavior lead to dishonesty. The fraud triangle is applied on behavior of professionals active in fields such as medicine, education, research and science or clergy. Evidence shows that even in these fields, which attract more altruistic individuals, the fraud triangle factors predicts emergence of behavior in breach of ethical standards. In the conclusion several measures for reducing dishonesty are discussed. Disciplines such as forensic economics or behavioral ethics are emphasized to provide wider variety of tools to detect and reduce dishonest behavior.

Retiring the Historical Net Discount Rate

Abstract The methodology of using a net discount rate (“NDR”) to calculate the present value of future labor earnings is now over 50 years old. First found in public health economics, the earnings NDR later reached forensic economics where it was adapted to other calculations such as the present value of medical costs. At first, some forensic economists embraced the historically determined wage NDR arguing that it was simple, fair, and 0% since annual wage growth and interest rates had been fairly equal to that time. The 0% wage NDR did not sit well with some other forensic economists, and so a discourse began in the literature regarding its numeric value. Largely missing from the debate has been an analysis of the historically determined NDR, as it has been constructed and used, as a legitimate present value methodology. Building upon the initial criticisms of the NDR by Jones (1985, 1986) and the recent work of Foster (2015), this article examines the historical wage NDR method and concludes that, for several reasons, it is theoretically faulty, empirically inconsistent, and not relevant to forensic economics.

Update to Assessing Economic Damages in Personal Injury and Wrongful Death Litigation: The State of Mississippi

Abstract This article provides summary and analysis of case law and relevant statutes in Mississippi since 2004 that are important for the forensic economist to consider in the calculation of economic damages in wrongful death and personal injury matters. Particular attention is devoted to Rebelwood Apartments RP, LP v. English (2010), which provided specific guidance to the forensic economist in Mississippi on several fronts and explicitly tasks the economic expert with rooting analysis in sufficient facts and evidence.

An Alternative Estimation Technique for Determining Discount Rates and Earnings Growth Rates in Wrongful Death and Personal Injury Cases

Abstract Regardless of the time period studied since the 1970s ended, without adjustments for structural factors, both real and nominal interest rates across the spectrum of maturities exhibit non-stationary processes with a unit root. Consequently, simply employing past means of either real or nominal yields losses a degree of credibility. Focusing on the period of the “Great Moderation,” employing structural break analysis can remove the non-stationarity so that forensic economists can chose not to use more complex ARIMA models, stochastic properties of interest rates, or estimating methods more complex than these. Rather, following the analysis in this paper, forensic economists can employ one of a small number of discount rates from a not too distant past time period that reflect systematic variations more likely to be consistent with predictable future interest rates.

Net Interest Rates: History and Measurement

Abstract Johnson and Gelles (1996) observed that starting in about 1980 the interest rates on U.S. Treasury securities rose sharply, and argued that because of the increase, forensic economists should not use low interest rates based on earlier experience for calculation of present values. Interest rates did indeed rise sharply. But by 1996 interest rates were already falling; rates have continued to fall so that the status quo ante has been essentially restored. This bit of forensic economic history would be of little interest except that Johnson and Gelles are still cited to help justify net interest rates more appropriate to the 1980s than to 2015. This note updates their work, using their same sources and method; it is intended in part to show that the high interest rates described in their paper are not now relevant. The note continues, to discuss how to measure net interest rates. There are two issues: (1) The net rate for an n-year note should use the n-year rate of wage increase; alternatively it should compare the 1-year rate of return on the n-year note (with capital gains from resale) with the 1-year rate of wage increase. (2) Interest rates are measured daily, and wages monthly. Does the use of annual averages change the results? Answer: the overall picture given by alternative definitions is not very sensitive to the definition of the net interest rate, except that when 3- or 10-year notes are held for just one year and re-sold to give a total annual return that includes interest and capital gains or losses, volatility of returns is considerably higher than when the securities are held to maturity; the result suggests that the return on Treasury notes for one year with resale is not appropriate for discounting earnings losses to present value.

A 2015 Survey of Forensic Economists: Their Methods, Estimates, and Perspectives

Abstract In January 2015, 590 e-mail invitations to complete an electronic survey were sent to NAFE (National Association of Forensic Economics) members. The response rate was approximately 33%, almost nine percentage points higher than the last paper survey administered in 2003. The survey covered many of the major topics included in earlier surveys, such as values of important economic variables (e.g., discount rates), trends in the practice of forensic economics (e.g., personal sources of earnings), and open-ended questions concerning ethics and reactions to the survey instrument. On the 2015 Survey instrument there were several new questions concerning such matters as how forensic economists perceive the role of vocational (rehabilitation) experts, the effects of the Affordable Care Act on loss estimates, how members charge for their services, and the size of respondents' practices.