RESPONSE TO BELL AND TAUB, "SOME ISSUES CONCERNING RISK ADJUSTMENTS IN DAMAGES CALCULATIONS"

Bell and Taub criticize my 1997 paper in this journal on two grounds: First, that I am wrong that a discount rate for projecting a lost earnings stream should be free of default risk; Second, that I have supposedly made some errors in my discussion of differences between default risk and inflation risk. I will deal with each issue in turn. I. The Default Risk Issue The primary reason that I do not advocate use of an interest rate containing a premium for the possibility of default is case law, not the double counting argument hat I mentioned in my paper. The key decision is Jones & Laughhn Steel Corp V. Pfelfer, 103 S.Ct. 2541 (1983). Bell and Taub mention this case, but suggest that "the court’s decision in this matter is not based on economic principles. " That is a rather sweeping statement given that Pfeifer contains an extensive and complex consideration of all elements that must be considered in a personal injury loss calculation, but it is obvious that Bell and Taub think that the Pfeifer court was wrong in not allowing use of a discount rate containing a default risk premium. The important point is that Pfeifer sets a standard that is applied in many legal venues, both state and federal, regardless of the "rightness " or "wrongness " of th