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Compensation in Personal Injury Cases: Mean or Median Income?

Author

Listed:
  • Danziger, Leif

    (Ben Gurion University)

  • Katz, Eliakim

    (E. Katz Economics Inc.)

Abstract

Courts typically base compensation for loss of income in personal injury cases on either mean or median work income. Yet, quantatively, mean and median incomes are typically very different. For example, in the US median income is 65 percent of mean income. In this paper we use economic theory to determine the relation between the appropriate make-whole (full) compensation and mean and median work incomes. Given that consumption uncertainty associated with compensation generally exceeds that associated with work income, we show that the appropriate make-whole compensation exceeds mean (and therefore median) work income. Hence, if the compensation must be either the mean or the median work income, then mean work income should be selected.

Suggested Citation

  • Danziger, Leif & Katz, Eliakim, 2019. "Compensation in Personal Injury Cases: Mean or Median Income?," IZA Discussion Papers 12466, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp12466
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    References listed on IDEAS

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    More about this item

    Keywords

    compensation; personal injury; income loss; uncertainty; risk aversion;
    All these keywords.

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics

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    This paper has been announced in the following NEP Reports:

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