On Selection of the Discount Rate for Actuarial Assessment of Damages in Personal Injury Litigation in Hong Kong
Posted: 29 Feb 2008
When assessing future pecuniary loss in personal injury litigation, courts often award a lump sum amount to compensate the plaintiff for future loss of earnings and to cover future expenses. The discount rate is essential to the actuarial calculation of the award. It is the rate of interest the claimant can be expected to achieve on the lump sum before it is used up. Conventionally, the Hong Kong Courts followed the United Kingdom authorities in many judicial decisions. The Lord Chancellor has recently set the discount rate at 2.5 per cent per annum. However, the Lord Chancellor's decision was based on the economic conditions of the United Kingdom, not of Hong Kong. This paper examines, both theoretically and empirically, the proper discount rate in the context of Hong Kong's local circumstances. We conclude that a rate of 3.5 per cent per annum is more appropriate for Hong Kong.
Keywords: discount rate, Fisher equation, multipliers, purchasing power parity, uncovered interest rate parity
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