Compensation for Loss of Work Income in Personal Injury Cases

21 Pages Posted: 8 Aug 2017

See all articles by Leif Danziger

Leif Danziger

Ben-Gurion University of the Negev - Department of Economics; IZA Institute of Labor Economics

Eliakim Katz

Northern Illinois University - Department of Economics; E. Katz Econmics, Inc.

Date Written: July 7, 2017

Abstract

What is the appropriate lump-sum compensation for loss of work income in personal injury cases? Since generally future work income is not known with certainty, compensation for its loss must be based on statistical considerations. Typically, courts have based awards on mean or median work income, but apparently without meaningful grounding in economics. We use economic theory to address this issue. We find that the relation between the appropriate compensation and the mean and median work income depends on the uncertainties of work income and of consumption facilitated by the lump-sum compensation awarded, as well as the degree of risk aversion. Since the consumption uncertainty associated with compensation generally exceeds that associated with work income, we conclude that the lump-sum compensation should exceed mean and therefore median work income.

Keywords: Law and Economics, Personal Injury, Income Loss, Compensation, Uncertainty, Risk Aversion

JEL Classification: K130

Suggested Citation

Danziger, Leif and Katz, Eliakim, Compensation for Loss of Work Income in Personal Injury Cases (July 7, 2017). CESifo Working Paper Series No. 6570, Available at SSRN: https://ssrn.com/abstract=3014785

Leif Danziger (Contact Author)

Ben-Gurion University of the Negev - Department of Economics ( email )

Beer-Sheva 84105
Israel
8-6472295 (Phone)
8-6472941 (Fax)

HOME PAGE: http://www.econ.bgu.ac.il/facultym/danziger/main.htm

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Eliakim Katz

Northern Illinois University - Department of Economics ( email )

Zulauf Hall 515
DeKalb, IL 60115
United States
815-753-6970 (Phone)
815-752-1019 (Fax)

HOME PAGE: http://www3.niu.edu/acad/econ/katz.html

E. Katz Econmics, Inc.

1206 Centre Street
Vaughan, Ontario
Canada

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