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Computing Lost Profits in Business Interruption Litigation: A General Model

Author

Listed:
  • Stephenson Stanley

    (Litigation Economics LLC)

  • Macpherson David A.

    (Trinity University)

  • Prakash-Canjels Gauri

    (Kenrich Group)

Abstract

This paper focuses on business interruption litigation and how to compute lost profits as a remedy. The main contribution of the paper is development of a general model of economic damages which assesses lost profits by measuring the incremental changes in revenue, variable costs, and fixed costs. Prior treatments can be understood as special cases to this general model. Several sources of economic damages can now be considered due to business interruption, including changes in prices, quantity sold, variable cost structures, fixed costs, and extraordinary expenses. We also offer case examples using the proposed framework and provide practitioners with suggestions for damages estimation.

Suggested Citation

  • Stephenson Stanley & Macpherson David A. & Prakash-Canjels Gauri, 2012. "Computing Lost Profits in Business Interruption Litigation: A General Model," Journal of Business Valuation and Economic Loss Analysis, De Gruyter, vol. 7(1), pages 1-18, May.
    • Handle: RePEc:bpj:jbvela:v:7:y:2012:i:1:n:1
    DOI: 10.1515/1932-9156.1118
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    References listed on IDEAS

    as
    1. Carroll B. Foster & Robert R. Trout, 1989. "Computing Losses in Business Interruption Cases," Journal of Forensic Economics, National Association of Forensic Economics, vol. 3(1), pages 9-22, December.
    2. James Plummer & Gerald McGowin, 1993. "Key Issues in Measuring Lost Profits," Journal of Forensic Economics, National Association of Forensic Economics, vol. 6(3), pages 231-239, September.
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