The Structure of a Cost of Care Report

Dr. Bruce and Ms. Rathje provide an economist’s perspective on various issues that arise in the presentation of cost of care reports. These include issues such as incremental costs, requirements that will vary over a plaintiff’s lifetime, the approach to ranges of estimates for costs or replacement frequencies, the costs of housekeepers and personal care attendants, and presentation. They also provide a sample calculation, to illustrate the issues discussed in the article.

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The Dependency Rate as a Percentage of After-tax Income: Canada 2008

We examine whether or not the dependency rate increases or decreases as family income increases (or decreases). In particular, some experts have argued that the survivor’s dependency decreases as the deceased’s income increases. For example, whereas the widow of a man with low income might need, say, 80 percent of his income in order to be left in the same financial state as if he had lived, the widow of a wealthy man might need only 50 percent.

In this article, we will show that the dependency rate does not differ significantly from the lowest to the highest quintiles.

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The Discount Rate Simplified

In this article, which was written collaboratively by Christopher Bruce, Laura Weir, Kelly Rathje, and Derek Aldridge, we begin by setting out a number of criteria that we believe should be met when selecting the discount rate. We ultimately conclude that a portfolio of Government of Canada bonds of varying maturity dates meets our criteria. We then argue that forecasts of Government of Canada bond rates that are based on historical statistics are unreliable for many reasons. Finally, we argue that the rates of return that are currently available on government bonds represent reliable predictions of future rates. Short-term interest rates can perform this role because they represent rates that are actually available currently; and long-term rates reflect the forecasts that have been made by sophisticated financial institutions that have substantial investments in the market.

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The Discount Rate Revisited (Spring 2008)

This article reports on our latest survey of discount rates. We conclude that no changes to our existing discount rate assumptions are warranted, though a reduction in our long-term rate may be necessary in the future if the observed long-term rates remain significantly lower than our assumed rate.

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Estimating non-discriminatory lifetime earnings for young females

This articles examines the sources of male/female earnings differentials that might arise from differences between the sexes in labour force participation rates, part-time hours, and retirement ages. It concludes that, even in the absence of labour market discrimination, women may earn 25 to 35 percent less than men.

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The Discount Rate Revisited

In this article we review the recent evidence – both statistical and theoretical – concerning the discount rate (or real rate of interest). We review a number of different interest rates for each quarter since 1995 and find that every series has trended downward virtually continuously over the entire period. We then review the theoretical arguments that have been put forward to explain why this trend has been observed; and ask whether it is better to base a forecast of future rates of interest on the rates that are currently being observed or on averages of historical rates. We conclude that it would be inappropriate to rely on historical figures and instead we recommend use of multiple rates, based on the rates currently available for a variety of short- and long-term government bonds.

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Selecting the Discount Rate – An Update

This article extends the work done by us in issues 5(3) and 6(4) of The Expert Witness, we conclude that it would be appropriate to revise our existing 2½ and 3½ percent two-part forecast of real interest rates. We propose to use a rate of 2¼ percent for the first five years of all calculations. For all subsequent years we propose to use a rate of 3¼ percent.

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Male Versus Female Earnings – Is the Gender Wage Gap Converging?

In this article Kelly Rathje examines current and projected trends in educational attainment and labour force participation – two factors which influence earnings. Then, she present the results of some recent research regarding the projected gender wage gap. Next, she considers the implications of these results for the estimation of the potential incomes of young females.

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Evaluation of Harm to a Class of Individuals

In this article Kelly Rathje explains how the estimates of damages can be improved if the plaintiff is one of a class of individuals who have been affected by the same harm. In such cases, a statistical technique known as econometrics can be employed to compare the earnings capacity of the victims of the harm with the earnings capacity of a randomly selected sample of individuals who have not been so-harmed. This technique can be used, for example, to determine the impact of sexual abuse on a students at an orphanage or residential school.

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Selecting the Discount Rate

In this article we begin by providing clear definitions of a number of fundamental concepts. These include: real interest rate; nominal interest rate; discount rate; real return bonds; and core rate of inflation. We then summarise the recent statistical data for various measures of inflation and interest rates in Canada. Finally, we use those data to calculate the “real interest” rate and to forecast a long-run discount rate. We conclude from this analysis that that rate appears to be 4.0 percent. However, as there has been some recent volatility in interest rates, we propose to revisit our forecast a year from now.

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Rates of Return to Advanced Education in Alberta

This article, by Kelly Rathje, is based on the thesis she wrote for her M.A. in economics from the University of Calgary. Her thesis concerns the costs and benefits of post-secondary education. In particular, she views education as an “investment” in oneself. The costs of that investment are tuition, books, and foregone income. The benefits are measured in terms of increased income. On this basis, she can compare the relative “rates of return on investment” for various types and levels of education.

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