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Temporal Posture and Discount Rates for Groundwater Contamination Damages

March 2010

Citation: ELR 10262

Author: Bill Wade and Robert Trout

Recent experience as an economic expert in a groundwater contamination lawsuit reveals that lawyers and financial experts are unclear about what criteria govern temporal posture for determining economic losses. Whether damages should be benchmarked ex ante at the time of harm, or ex post at the time of trial, has a long intellectual history in financial and legal journals--and in case decisions. The theoretical elegance of some of the considerations discussed in the literature may overwhelm the practical issues governing choice of temporal posture in a contamination case.

A much-cited 1992 article by John Taurman and Jeffrey Bodington concludes that the distinction between ex ante and ex post benchmarking of damages is "a choice between two well-defined methodologies." After an exhaustive survey, they conclude: "The historical trend to damages law is toward more detailed inquiry into the particulars of a plaintiff's loss." They wrap up their article by saying: "[I]n the hands of juries, the allure of hindsight can be expected to be strong."

While relying on factual evidence uncovered between the time of harm and time of trial may have great appeal, some experts may argue that the standard practice for an economic damages calculation is to benchmark the value ex ante to the date of the harm. Ultimately, damages measured at the time of harm presume that the values are not undone by factual evidence uncovered while various legal activities delay the trial date further into the future. The longer the delay before trial, the more plaintiff's and defendant's experts' damage estimates might diverge, if only because of considerations of rates for prejudgment interest. For the practitioner, the choice between "two well-defined methodologies" needs more concrete guidance. The allure of hindsight is not a sufficient condition to support the choice.

Dr. William W. Wade is a resource and financial economist in the firm Energy and Water Economics, in Columbia, Tennessee. Dr. Robert R. Trout is a financial economist and a partner in Lit.Econ, LLP, a California-based economic consulting firm.

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