A Primer on Prejudgment Interest

Michael S. Knoll

University of Pennsylvania Law School; University of Pennsylvania - Real Estate Department

September 1995

Working Paper No. 95-3, University of Southern California Law Center

If justice were immediate, there would never be an award of prejudgment interest. The injured party would immediately receive an enforceable judgment, with no loss from delay because of the time value of money. Because justice often takes many years to achieve, the laws of most U.S. jurisdictions provide that interest is added to the original judgment from the time of the injury to the date of judgment. Such interest, called prejudgment interest, plays an important role in expediting the resolution of disputes. In spite of the importance that prejudgment interest plays in the administration of justice, existing law provides trial court judges with nearly unfettered discretion in calculating prejudgment interest. That discretion has produced widely divergent results, seriously undercutting the law's goals of compensating the injured and deterring injurers. The paper describes how courts should go about calculating prejudgment interest. It suggests that prejudgment interest should be compounded and calculated at a floating rate that reflects the defendant's cost of unsecured borrowing.

JEL Classification: K41

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Date posted: May 3, 1995  

Suggested Citation

Knoll, Michael S., A Primer on Prejudgment Interest (September 1995). Working Paper No. 95-3, University of Southern California Law Center. Available at SSRN: https://ssrn.com/abstract=10043

Contact Information

Michael S. Knoll (Contact Author)
University of Pennsylvania - Real Estate Department ( email )
Philadelphia, PA 19104-6330
United States

University of Pennsylvania Law School ( email )
3501 Sansom Street
Philadelphia, PA 19104
United States
215-898-6190 (Phone)
215-573-2025 (Fax)
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