Academic journal article Journal of Legal Economics

Household Services as Life Care: An Alternative View of Household Services in the Legal System

Academic journal article Journal of Legal Economics

Household Services as Life Care: An Alternative View of Household Services in the Legal System

Article excerpt

Introduction

Most of the literature concerning household services in forensic economics treats household services production as if that flow was equivalent to a flow of lost earnings. All of the papers covered in Ireland and Depperschmidt (1999) implicitly take that perspective. To the extent that there has been debate among forensic economists about the measurement of lost household services, the primary issues have been about whether one should use replacement cost or opportunity cost measures or about which time use survey was more reliable for determining replacement cost. There has also been debate whether and under what circumstances a forensic economist should rely on data specific to the loss of services by a given household versus relying on the kinds of general measures that can be obtained through time use surveys. This paper argues, however, that another level of this debate is warranted by legal decisions that treat household services as a type of life care needed after an injury, rather than as a loss of earning capacity, particularly in New York.

This paper will argue that there is a profound difference between the earning capacity approach used by most forensic economists and the life care approach used in New York and sometimes in other states. It will not argue that one method is better than the other but that the conceptual basis of each method is logically consistent in its own terms.

The Nonmarket Production Capacity View

The approach taken by most forensic economists starts with some assumed number of hours an individual has provided that can no longer be provided because of an injury or death. Those lost hours are then valued in terms of either the market replacement wage or the opportunity cost wage rate for the lost hours. The number of hours provided before and after the injury or death may come from a time use survey or from statements made by the injured plaintiff or survivors of a decedent in wrongful death circumstances (Martin 2003 ; Ireland and Depperschmidt 1999; Ireland, Horner, and Rodgers 2000). Disagreements exist among forensic economists about when replacement cost or opportunity cost are more accurate, whether it is better to rely on statements of injured plaintiffs or more general time use surveys, and which time use surveys to rely upon. However, the basic formula for a calculation of damages assumes some measure of the amount time previously spent providing household services times and some measure of the market value of that time.

It is seldom made explicit, but this general approach relies on an underlying notion of household service production as one of the uses of an individual's earning capacity. An individual has 168 hours in a week. If one assumes that sleep occupies 56 hours per week (at 8 hours per night), that labor market employment occupies 40 hours per week, that personal maintenance and transportation to and from labor market employment take up another 15 hours per week, about 57 hours of discretionary time remain. Much of this time will be used for leisure, but a part of it is used for producing household services. The logic of an opportunity cost approach is that this time could have been sold in the labor market for additional compensation. The logic of replacement cost is that it would cost that number of dollars to hire someone else in the labor market to replace the number of hours of services previously provided by the injured plaintiff or decedent. Valuation in an opportunity cost analysis is based on what the individual himself or herself could have earned in the labor market. Valuation in a replacement cost analysis is based on what others would have to be paid to replace the hours that were lost. With both approaches, and with all of the other disagreements about how to measure both the amount of time and the value of that time, lost time is being valued by some measure of the market value of that time (or production) lost because of an injury or death. …

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