by Michael Behr
This article was originally published in the autumn 1999 issue of the Expert Witness.
Has an injured person sustained a loss if the injury forces a change in occupation which produces higher income? Definitely. Any suggestion that injury is beneficial contradicts fundamental economic principles.
Economics allocates resources to competing uses which forces choice. The possession of a higher quantity and quality of resources is the power to realize more valuable choices. Injury, virtually by definition, is a reduction in the quantity or quality of resources possessed by the injured party. Therefore, injury constitutes economic loss.
Cross Section versus Time Series
Sleight of intellect puts damages into time series and concludes that higher post-injury income shows no loss. But the issue in damages is not the time series difference between yesterday without injury versus today with injury. Rather, damages are the cross sectional difference between today without injury and today with injury. Time series violates the required ceteris paribus conditions because the passage of time incorporates many changes in addition to the injury itself, most notably of course, the occupational change producing the higher income.
The naïve are seduced by the replacement of cross section with time series because life is lived in time series, whereas the cross section requires abstraction from experience to comprehend the alternative condition after injury but without the injury. The skilled tortfeasor defendant can be expected to attempt to substitute time series for the cross section if it leads to a lower or negative loss conclusion because of higher post-injury income. That defendant is emboldened by the realization that time series will probably have intuitive appeal to a jury. Plaintiff must therefore be vigilant and unyielding in preserving the cross section. If not, the defendant making an invalid argument to an economically naïve jury has an excellent chance of producing a perverse verdict to the detriment of plaintiff. Perverse verdicts are inconsistent with market values and therefore also reduce the general welfare of society.
The thoughtful may attempt to rebut the above, arguing that information is central to the allocation of resources to their most valuable ends, citing the role of information as a condition of a competitive economic system. Inasmuch as it was the injury that “informed” plaintiff of the higher income opportunity, it is argued the damages should be credited with the higher income itself. This argument contradicts fundamentals underlying a market economic system in a society valuing individual liberty.
The higher income opportunity undoubtedly existed prior to
the injury, but may have been rejected for noneconomic reasons. The disutility of the higher income employment may exceed the value of the higher income itself in the eyes of plaintiff. If so, forcing plaintiff to credit the damage with the higher income is to force plaintiff to substitute uncompensated noneconomic loss for what would otherwise be compensated economic loss.
Accepting the argument for crediting the damage with the higher income leads to the conclusion that I should waken my sleepy neighbor by disabling him to force him to replace his physical occupation with more sedentary higher employment. Further, he should pay me for this valuable service. This absurdity is a direct incentive to destroy resources, which in a world of resources insufficient to satisfy all competing ends is inimical to the interests of society.
The economic essence of collateral source is compensation for injury occasioned by the injury itself. Generally, defendant is barred from a credit against liability for damage from collateral sources on the grounds that the social interest is served by not allowing a tortfeasor to escape the cost of his acts. This position is consistent with market economics where parties bear the cost of their actions in exchange for reaping the benefits. Although the discovery of a higher income occupation occasioned by an injury is not included as a collateral source in the law, its economic character is that of collateral source. The tortfeasor may not benefit from it as a matter of economics-and ideally in the law as well for whatever reason.
At some point collateral source comes into tension with the economically valid legal requirement that plaintiff must make the best of it under the circumstances. The market expects resources to find their way to their highest and best uses, including those held by injured plaintiff. This works to the benefit of tortfeasor and may include some obligation by plaintiff to move to a more suitable post-injury occupation which may turn out to be higher paying. How much disruption of plaintiff’s life to accommodate his/her injury is a reasonable obligation of plaintiff? Is he/she required to move to another planet, so to speak, to realize the higher income?
The consequence of this tension is that the damage will be bounded by the cross sectional differences between pre-and post-injury income in the pre and post-injury occupations. Inasmuch as the adequacy of plaintiff’s mitigation is inevitably directly or indirectly a jury question, the economist may be well advised to provide a damage conclusion based on the effect of the injury on both the pre-injury earning capacity in cross section and on the higher post-injury earning capacity in cross section. The injury’s hindrance of performance in the higher income employment may actually be greater than its hindrance of the pre-injury occupation in cross section. An expert vocational opinion may be a foundational requirement for each occupation.
If there are retraining or other costs to plaintiff necessary to realize the higher post-injury income, the value of the higher income must, of course, be net of those costs.
Conclusion: The destructiveness of an injury establishes the fact of an economic loss irrespective of pre and post-injury incomes or earning capacity. Plaintiff’s competitive position, and therefore his range of choice in the market is reduced by the injury, legal prohibitions of discrimination against the disabled notwithstanding. The forensic economist’s damage conclusion is, at its core, the value of that reduced range of choice.