Commonalities Between Litigation Economics and Public Policy Studies

Frank Rudewicz
April 18, 2008 — 1,421 views  
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Economic analysis enters into a wide range of business and legal issues. Practicing economists often work in different forums.  This includes both the courtroom as well as the public policy arena.  What is often not recognized is that the analytical tools and expertise applied in litigation economics is well suited to questions concerning public policy and vice versa.      Economics is a science.  Economists are trained in the scientific method.  The scientific method involves the development of hypotheses and then the testing of the hypotheses against the available data.  This provides a powerful framework for thinking about issues that arise in an adversarial forum such as the courtroom or in addressing public policy issues where opinions differ, sometimes dramatically.    Recently UHY Advisors completed a major study involving the assessment of the impact of the legalization of casino gambling on the Commonwealth of Massachusetts.  While the results of our work were not presented in a courtroom setting, our work on this important issue involved many of the important elements that an economist would incorporate into a commercial damages analysis.  Some of the commonalities included:   *     Economic Modeling:  In a commercial dispute, economic experts typically construct models to determine the amount of damages.  In a lost profits analysis, the economic model would examine the difference between actual outcomes and projected profits "but-for" the wrongdoing. Economic and forecasting models are also important in public policy analyses.  In our work on casino development, we examined the impact of macroeconomic developments and policy decisions on the revenues of the developments and tax receipts of state government.   *     Timing and the Impact of Risk: In a commercial dispute, the alleged loss may arise over a period of time.  The estimation of damages in commercial disputes often requires the economist to account for risk and the time value of money.  The same issues arise in public policy analyses.  Implementation of a change in policy usually occurs at some future date and the outcome is subject to some level of risk.    *     Clarity of Presentation of Results.  In a courtroom setting, it is important that an expert be able to explain the methodology and results of the analysis to individuals without the same level of technical expertise.  Clarity in oral and written expression is critical.  This is also true in the public arena.  An expert must be able to clearly communicate key insights and data to policymakers.  This is particularly important when an issue is hotly debated and prone to misinterpretation.      There is one important difference between economic analysis concerning public policy issues and commercial damages work in the courtroom. Economic analyses in the courtroom setting typically remain under seal. Public policy analyses are subject to critique from a broader range of interested parties as well as the press.  Nevertheless, in both situations, the economist needs to consider alternative hypotheses and interpretations of the results and stand ready to address potential challenges or criticisms of the work.   Special Thanks to Dr. James Bohn, PhD Economist of UHY Advisors FLVS, Inc.

Frank Rudewicz

Marcum LLP

Frank E. Rudewicz serves as Principal and Counsel of Marcum LLP and heads the Forensic, Investigative and Valuation Advisory practice for the New England area. He has more than 26 years experience conducting domestic and international investigations for anti-trust/anti-competitive issues, harassment, fraud, ethics and other employment related conduct.