Estimating Personal Consumption with and without Savings in Wrongful Death Cases
Ajwa, Martine T., Martin, Gerald D., Vavoulis, Ted, Journal of Forensic Economics
In wrongful death cases, forensic economists consider personal consumption costs of a decedent when determining economic damages. Examples of personal consumption costs used by only one person include food, apparel, health care, entertainment, and personal care products. These personal consumption costs are typically deducted from income because they would otherwise have been used exclusively by the decedent and their deduction should allow the family to maintain a comparable standard of living.
Many forensic economists have, in the past, attempted to quantify personal consumption costs, but most have ignored a household's savings as a form of delayed consumption. However, it is logical to assume that a portion of the household's savings, whether consumed before or after retirement, would have been consumed exclusively by the decedent just as any other portion of a household's income. By ignoring savings as delayed consumption, the economist's deductions for a decedent's consumption will be too low. This study will present consumption tables which both include and exclude various forms of savings.
Prior studies which have attempted to quantify personal consumption costs are numerous. A seminal study by Earl Cheit (1961) calculated the percentage of income consumed by the head of the family by family size. Since then, new data have become available that allow the calculation of consumption not only for the head of a family, but for each parent and child. These data are available
through the Bureau of Labor Statistics' Consumer Expenditure Surveys. Indeed, Nelson and Patton (1984) recognized that these Consumer Expenditure Surveys could be used to measure personal consumption as a function not only of family size, but also of income level. They found that income for adult males and females varied inversely with family size and with income level (Patton and Nelson, 1991; Lierman, Patton & Nelson, 1998). It is understandable that each member in a large family would consume a smaller portion of income than those in a small family. However, for higher income families, a portion of income appears to be set aside for savings. And if savings represents delayed consumption for these higher income families, then the figures that have been presented in previous studies understate consumption.
The most recent consumer expenditure survey data made available by the Bureau of Labor Statistics are for 1997. The tables used in this study can be easily downloaded from the internet at http://stats.bls.gov:80/csxcross.htm. Their tables 37-40 show the average expenditures in households of various sizes by before-tax income levels. We have ignored consumption for households of one person not only because we typically see lawsuits by those who lived with decedents but also because we would expect that person to consume all his income either as immediate consumption items or later as savings. Even excluding the one person households, there are 59,664 consumer units reporting in these tables.
Similar to the Patton-Nelson studies, we have divided consumption across adult males and females. However, considering that the Consumer Expenditure Surveys also account for expenditures on children under age 18, we have added a third category of consumption attributable to children. This figure may not be exact as the average number of children in households of two persons is 0.1, in households of three persons is 0.8, in households of four persons is 1.7, and in households of five or more persons is 2.9. For simplicity, we have assumed that there are two adults in each household with the remaining number of persons represented by children.
The Consumer Expenditure Survey lists the average expenditures by an "average" household meeting both household size and income bracket criteria. These expenditures are broken down into categories. We have aggregated male, female, and children's expenditures very similarly to Patton and Nelson (1991):