Risk as a Discount Rate Determinant in Wrongful Death and Injury Cases

Calculations of lost earnings capacity in wrongful death and personal injury cases are typically based on the discounted present value of lost future wages. The paper argues that these calculations have generally overstated damages by using discount rates that fail to take proper account of risk associated with future wage income. An examination of the theoretical and empirical bases for such calculations will show that the practice of discounting with essentially risk-fre rates is inconsistent with fundamental notions of common law and economic theory.