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Guide to Economic Damages

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Economic damages are used in litigation to quantify damages in, inter alia, breach of contract, theft of trade secrets, copyright infringement, fraud, negligence, wrongful termination, and wrongful death cases.

This article will describe the types and differences in the calculation of economic damages.

What Are Economic Damages?

Economic damages are tangible losses that can be quantified with a reasonable degree of economic certainty, alleged to be caused by defendants in commercial litigation matters.

Past damages may include, for example, losses due to replacing defective products or due to injury.

Future losses may include, for example, future earnings due to loss of reputation, and future earnings for individuals due to the inability to work in the future.

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Examples of Economic Damages

Examples of economic damages include:

  • Lost profits due to the theft of trade secrets
  • Diminution in business value due to lost reputation
  • Loss in the value of investment holdings due to fraud
  • Lost earnings due to wrongful death or termination
  • Lost pension fund or investment account value as a result of portfolio mismanagement

Types of Economic Damages

Plaintiffs suffering economic damages in a lawsuit typically claim lost profits or diminution in business value as a result of the defendant’s acts.

Such acts could include:

  • Fraud
  • Copyright infringement
  • Theft of trade secrets
  • Negligence
  • Wrongful death
  • Wrongful termination
  • Portfolio mismanagement

Actual Damages vs Economic Damages

In calculating economic damages, understand that it may not be possible to calculate actual damages with exact certainty, thus the courts require that damages be calculated with a reasonable degree of economic certainty. Using scientifically and generally accepted methodology and a determinable error rate.

Economic vs Compensatory Damages

Compensatory damages are total damages that are alleged to be suffered by a plaintiff in a lawsuit. Compensatory damages include both economic damages and non-economic damages.

Economic damages are intended to compensate for quantifiable losses. These include:

  • Lost wages
  • Cost of hospital care in personal injury suits

Non-economic damages are intended to compensate for losses that are difficult to quantify in monetary terms. These damages can include compensation for things like emotional distress.

Punitive damages and damages for pain and suffering may also apply depending on the specifics of the case.

Economic Damages vs. Punitive Damages

Economic damages are meant to compensate the plaintiff for losses related to actions allegedly caused by the defendant.

Punitive damages are meant to discourage defendants from committing such acts in the future by imposing an additional penalty paid to the defendant, sometimes as a factor of economic damages.

For example, in antitrust matters, punitive damages can be three times or triple economic damages.

Are Economic Damages Paid in a Settlement?

Settlement usually results when both plaintiff and defendant agree on an amount that would make both parties avoid the expense and risk of trying the case. Studies show that over 90% of cases that are filed are settled with variation across the type of case filed and at what stage the case is at.

A fraction of economic damages is usually paid out as part of the settlement. For example, in securities fraud class-action settlements, one study found that the median settlement approved by federal judges was 25% of economic damages.

Valuing Economic Damages

DMA Economics has the experience, understanding of nuances, technical skills, and data needed to derive Economic damages with a reasonable degree of economic certainty for many types of commercial litigation matters.

For more information on how our team can help you, contact us today using the form on this page.

Donald May Economic Damages Expert Witness

About the Author

Dr. Donald M. May PhD CPA

As a former MIT finance professor with extensive testifying experience, Dr. May is a world-class expert in the valuation of damages. With his invaluable experience in testifying in arbitration as well as state and federal court, Dr. May represents what sets us apart from others—our solid knowledge base and experience.