The Calculation of Prejudgment Interest

36 Pages Posted: 1 Jun 2005

See all articles by Michael S. Knoll

Michael S. Knoll

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

Jeffrey M. Colon

Fordham University School of Law

Date Written: May 31, 2005

Abstract

This Essay describes the proper method of calculating prejudgment interest based on sound financial principles. Using the paradigm that the claim plaintiff holds in litigation represents an involuntary loan from plaintiff to defendant and recognizing that in bankruptcy courts treat legal claims similarly to unsecured debt, we argue that prejudgment interest should be computed using the defendant's unsecured borrowing rate. Furthermore, we argue that courts should use a short-term, floating interest rate rather than a long-term rate in order to provide the proper incentive for the parties to settle. We criticize alternative bases for awarding prejudgment interest and address modifications to account for taxes, insurance, foreign currency conversion, asynchronous payments, and suits involving individual plaintiffs.

Keywords: Prejudgment interest, litigation, trial, compensation

JEL Classification: G39, K10, K49

Suggested Citation

Knoll, Michael S. and Colon, Jeffrey Miguel, The Calculation of Prejudgment Interest (May 31, 2005). U of Penn Law School, Public Law Working Paper No. 06-21. Available at SSRN: https://ssrn.com/abstract=732765 or http://dx.doi.org/10.2139/ssrn.732765

Michael S. Knoll (Contact Author)

University of Pennsylvania Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
215-898-6190 (Phone)
215-573-2025 (Fax)

University of Pennsylvania Wharton School -- Real Estate Department ( email )

Philadelphia, PA 19104-6330
United States

Jeffrey Miguel Colon

Fordham University School of Law ( email )

140 West 62nd Street
New York, NY 10023
United States

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