Hedonic damages

Hedonic damages, an economic term of art, refers to loss of enjoyment of life damages, the intangible value of life, as distinct from the human capital value or lost earnings value.

History

Stan V. Smith, a Ph.D. graduate from the University of Chicago, first coined the term "hedonic damages" in the case of Sherrod v. Berry, 827 F.2d 195 (7th Cir. 1987).[1][2] and testified as an expert witness in regards to the amount of the hedonic award, the first such testimony proffered nationwide.[3] It has since been in widespread use in subsequent legal decisions, in law review articles, and in law and economics articles nationwide. See for example Professor Cass Sunstein's University of Chicago Law & Economics, Olin Working Paper No. 340, July 2007. Such testimony has been admitted in state and federal court hundreds of times nationwide, increasingly gaining acceptance over past decades. Trained at the University of Chicago, Dr. Smith has published numerous peer-reviewed Journal articles on hedonic damages including research completed for his dissertation supervised by Nobel Laureate Gary Becker. Becker and his blog colleague Federal Appellate Judge Richard Posner both advocated the use of economic literature on the value of life in litigation. Dr. Smith also co-authored the first textbook on Hedonic Damages in 1990, published by Anderson Publishing, Ohio

Application

Hedonic damages, the loss of the value of life, are allowed in almost every state in a non-fatal injury case. Based on William Daubert et al. v. Merrell Dow Pharmaceuticals, Inc., and other admissibility tests, many but not all jurisdictions allow economic expert witness testimony on hedonic damages. For example, the Nevada Supreme Court unanimously approved of such testimony in Banks v. Sunrise Hospital, 120 Nev. 822, 102 P.3d 52 (2004). Similarly, the 4th Appellate District in Ohio allowed such testimony based on Daubert in Lewis v. Alfa Leval, 128 Ohio App.3d.200 (1998). The Court of appeals in the Lewis case held that the trial judge properly ruled that the testimony met the Daubert Standards, and that it was within the discretion of the trial court to have admitted hedonic damages testimony. The measurement of hedonic damages is based on some 40 years of extensive, well-accepted, peer-reviewed, economic research on the value of a statistical life (VSL). This measurement is controversial among forensic economists. The Value of Statistical Life literature is accepted by most forensic economists, including those economists few who oppose the admission of hedonic damages testimony. Many courts nationwide have allowed such testimony but judges have significant discretion as to its admissibility. Economists generally agree that the VSL is in the $4 million to $5 million range. This value is an average of many published results based on economic research using the willingness-to-pay model. Hedonic damages are not allowed in death cases in the great majority of the states. Some states do allow recovery in wrongful death cases, including New Hampshire, New Mexico, Georgia, Arkansas, Connecticut, Hawaii, and in Federal Section 1983 civil rights violation actions.

Hedonic damages also can apply in cases that involve no injury. Cases involving inmates wrongfully imprisoned have been won with Hedonic Damages approaches. Such were the plights of two former inmates, William Gregory and David Pope, convicted and later exonerated on rape charges. William Gregory, who served seven years in a Kentucky prison, received a $4.5 million settlement, while David Pope, who served 15 years in Texas, received $385,000. While the inmates were free, according to David Hunt, another inmate later freed after serving 18 years, "we're still living the nightmare every day". Hedonic damages attempt to compensate for that suffering with settlements.[4]

A person injured after falling from a defective chair was able to recover hedonic damages.[5]

Controversy

Economic testimony regarding hedonic damages has been allowed in over two thirds of the states and two thirds of the Federal District courts and has been endorsed in unanimous supreme court decisions in Nevada, New Mexico, and Mississippi and in appellate decisions in Ohio. In some states where trial judges have admitted the economic testimony a trial judge in another court may have not admitted the testimony. The same holds true for Federal Circuit courts. Undeterred by a unanimous Supreme Court decision endorsing hedonic damages testimony by an expert economist, The Mississippi legislature subsequently adopted tort reform that precludes loss of enjoyment of life testimony by economic experts. There is significant scholarship endorsing hedonic damages in personal injury and wrongful death cases.[6][7] Further, Hedonic Damages were allowed as an element of recovery in the September 11, 2001 Victim Recovery Fund.[8] Although the category of non-economic damages normally included in hedonic damage testimony was acknowledged when identifying and determining compensation for the victims of the September 11, 2001 attacks, the final determinations were not based on the methods or arguments normally presented by those experts who calculate and testify regarding hedonic damages.

The academic literature on the topic of testimony in personal injury and wrongful death cases currently (2011) reflects more a lack of controversy than implied above. In particular, despite a plea to use VSL estimates to better inform triers of fact in tort cases by Posner and Sunstein,[9] Kip Viscusi published a retort[10] and Thomas Ireland has published a number of articles indicating the demise of hedonic damages testimony in recent years[11][12]

Willingness-to-pay model

The willingness-to-pay model is based on measuring what people pay for safety that results in small reductions in their risk of death. For example, if average people are willing to pay $25 for a carbon monoxide detector that stands a one in two hundred thousand chance of saving their life, the model would imply that such purchasers value their life at $5 million ($25 times 200,000). Economists generally use circumstances involving small risk reductions, recognizing that measuring willingness-to-pay using larger risks will significantly increase the value of a statistical life.[13]

See also

References
  1. Blodgett, Hedonic Damages: A Price on the Pleasures of Life, 71 A.B.A.J., Feb. 1985.
  2. Jacoby, Tamar. NEWSWEEK, Feb. 1989: 61.
  3. Webb, Trent. Hedonic Damages: An Alternative Approach. 61 UMKC Law Review: 121 (1992)
  4. Paul M. Barrett, "The Price of Pleasure" (1988, Dec. 12). Wall Street Journal, p. A1.
  5. Hunt v. K-Mart Corp., 981 P.2d 275 (Montana 1999), found at David Friedman citations page. Accessed February 21, 2008.
  6. Andrew J. McClurg, It's a Wonderful Life: The Case for Hedonic Damages in Wrongful Death Cases, 66 Notre Dame L. Rev. 57 (1990-1991), found at Wrongful death law review article Archived 2006-12-08 at the Wayback Machine. Accessed February 21, 2008.
  7. See also David Freidman citations page, citing Andrew Jay McClurg, supra; Paul H. Rubin, "The Pitfalls of Hedonic Value Use, Nat'l L.J., January 16, 1989, at 15; and Ted. R. Miller, Willingness to Pay Comes of Age: Will the System Survive? 83 Nw.U.L.Rev. 876 (1989). Accessed February 21, 2008.
  8. Air Transportation Safety and System Stabilization Act, 115 Stat. 237, Section 402(7)
  9. Posner, E. A. and Sunstein, C. R. (2005) “Dollars and Death” University of Chicago Law Review, p.537-598.
  10. Viscusi, K. (2007) “The Flawed Hedonic Damages Measure of Compensation for Wrongful Death and Personal Injury” Journal of Forensic Economics 20(2) p.113-135
  11. Ireland, T. R. "Battleground States for Hedonic Damages Testimony" Presented at the American Academy of Economic and Financial Experts, Las Vegas, NV. March 28, 2007
  12. Ireland, T. (2009) “The Last of Hedonic Damages: Nevada, New Mexico, and Running the Bluff” presented at the Western Economic Association International, Vancouver, British Columbia. June 30, 2009.
  13. Bill Marsh, "The value of experience lost", New York Times, September 9, 2007, p. A13.
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