Present Value & Discount Rates in Economic Damages

Why Present Value Matters

A $100,000 annual loss over 20 years is not $2 million in today's dollars. Present value discounting reduces future loss to a single sum reflecting the time value of money. Small discount rate differences can shift damages by hundreds of thousands of dollars in catastrophic cases.

Counsel must know whether their forum requires present value presentation, permits nominal future loss, or mandates a specific methodology such as total offset.

Common Methodologies

• Nominal discount rate minus nominal wage growth (net discount rate approach)
• Real rate approach netting inflation from both wages and discount
• Total offset method assuming wage growth equals discount rate (zero net discount)
• U.S. Treasury-based rates cited in federal and many state cases
• Forum-specific statutory or case law prescribed rates

Disputes That Generate Rebuttal

Opposing experts may use different rates, confuse nominal and real treatment, or fail to discount fringe benefits consistently with wages. Sensitivity tables showing damages at multiple rates help mediators and juries understand the range.

The economist documents rate selection and cites authority; counsel argues legal applicability. The expert does not select legal theory.

Interaction With Wage Growth

Discount rates cannot be evaluated in isolation from wage growth assumptions. An aggressive growth rate paired with a low discount rate inflates present value. Conservative methodology pairs justified growth with appropriate discounting.

Retaining Standalone PV Analysis

When wage loss is stipulated but present value is disputed, counsel may retain limited-scope PV analysis. Future Earnings Expert network economists provide standalone discounting exhibits or full integrated reports as needed.