Prejudgment Interest

Discounting in Natural Resource Damage Assessment

“…The literature has described several conceptual approaches for guiding the choice of the discount rate in tort cases. Colon and Knoll (2017) summarize this literature and argue that the defendant’s cost of unsecured borrowing is the appropriate rate. This is based on the premise that the debt held by the plaintiff is an asset that has a risk and reward structure based on the defendant’s characteristics.…”

“…The relevant risk is based on the possibility that the court will reward the plaintiff with an amount equal to damages plus interest, but that the defendant will become bankrupt and default on payment. Colon and Knoll (2017), p. 4) write:“…if courts fail to compensate plaintiffs for the risk that defendants default, they will undercompensate plaintiffs and enrich defendants. Therefore, to put plaintiffs and defendants back into their positions before the injury occurred, plaintiffs must receive compensation for the risk that defendants will default… Accordingly, the [discount rate] should reflect the risk that the defendant defaults.”To the extent that the damages suffered are a coerced loan, the authors argue that plaintiffs should be awarded “interest based on the rate that the defendant would pay a voluntary creditor for an identical loan.”…”