The discount rate reflects the return a present sum could earn until the future loss occurs. Higher rates produce lower present values. Some jurisdictions prescribe a statutory rate while others leave it to expert testimony.
The net discount rate accounts for offsetting inflation.
Alternative Names:
Discount Rate Assumption, Present Value Discount Rate
Why it Matters?
Rate selection is the highest-leverage assumption in any future damages calculation, and a one or two point difference compounds across decades into very large variances. Plaintiff economists typically use low rates reflecting risk-free treasury returns while defense economists argue for rates reflecting a balanced portfolio. Where a statutory rate applies the dispute disappears, which is worth confirming before retaining an economist.
Frequently Confused with
Related terms
Frequently asked questions
Why does rate selection matter so much?
Do statutory rates exist?
