Reducing Future Losses to Present Value

The first input is the year-by-year stream of losses. For lost earnings, this is the projected difference between pre-event and post-event earning capacity across the relevant work-life. For future care, it is the projected annual cost of the items in a life care plan. The stream is built on a stated foundation: the vocational opinion, the life care plan, and demographic assumptions such as work-life expectancy (Skoog et al., 2011) or life expectancy (Arias et al., 2025).

The economist does not generate the underlying vocational or medical inputs. Those come from the appropriate experts. The economist's role is to assemble them into a transparent stream and to apply growth and discounting consistently.

Future earnings tend to grow with wage inflation and, in some occupations, with productivity and experience (U.S. Bureau of Labor Statistics, n.d.). Future medical and care costs tend to grow at rates that can differ from general inflation (U.S. Bureau of Labor Statistics, n.d.). The growth assumption should be tied to recognized data series appropriate to the category being projected, and the choice of series should be stated.

The point is not to find the highest or lowest plausible growth rate but to apply a defensible rate that is consistent with how the discount rate is chosen, as discussed below.

The discount rate reflects the return that could be earned on a safe investment of the award over the relevant horizon. It is commonly tied to yields on low-risk instruments rather than to speculative returns (U.S. Department of the Treasury, n.d.). The selected rate, and its source, should be disclosed so that opposing experts can test it.

A higher discount rate lowers present value; a lower rate raises it. Because the figure is so consequential, the basis for the chosen rate is one of the most important things to document and one of the most common points of cross-examination.

The relationship between the growth rate and the discount rate often matters more than either figure alone. Some analyses express this relationship directly as a net rate. Whatever the presentation, the assumptions must be internally consistent: it is not defensible to apply an optimistic growth rate alongside an unrelated discount rate chosen to maximize or minimize the result. Stating both inputs and their sources lets the trier of fact evaluate whether they were chosen coherently.

Because reasonable professionals can differ on growth and discount assumptions, a transparent analysis often shows how the present value changes across a reasonable range of inputs. Presenting a sensitivity analysis does not concede uncertainty in a damaging way; it demonstrates that the opinion was tested against alternatives and that the conclusion is stable, or it honestly shows where the result is most sensitive.

A defensible present-value report discloses the loss stream year by year, the growth and discount rates with their sources, the demographic assumptions, and the arithmetic that connects them. Given the same inputs, another economist should be able to reproduce the result. Reproducibility, not the size of the number, is the measure of a sound calculation.