Unsettled Issues in Measuring Lost Profits
Journal of Legal Economics
Many ofthe elements involved in calculating lost profits have been well-addressed in the literature. Indeed, the Journal of Forensic Economics devoted a special section to commercial damages in 1993, including articles on estimating lost profits by Foster, Trout, and Gaughan (1993), Manley and Reed (1993), and Plummer and McGowin (1993). However, several issues related to the determination of lost profits have received surprisingly little attention from economists, accountants, and lawyers. Foremost among these are the treatment of (1) the implicit cost of capital as a variable cost, (2) owner compensation issues, and (3) income taxes on lost profits. This paper addresses these three potentially important elements that may arise in a lost profit appraisal.
Bowles, Tyler J., and W. Cris Lewis. “Unsettled Issues in Measuring Lost Profits.” Journal of Legal Economics 9(3):19-32 (published December 2000).