Litigation and public policy: two more areas where consulting economists dare to tread

Business Economics, July, 1999 by Jennifer Polhemus

The very nature of consulting means that no projects are routine - they each have different objectives, data, and processes associated with them. Consultants are adept at adapting. This is especially true with the fields of forensic economics and public policy economics. Although both of these areas might fall into one or more other topic areas (e.g., forecasting or industry economics), the arenas in which the work is conducted make them unique.

Forensic Economics

Forensic economics is the practical application of economic knowledge to legal matters. In the broadest sense, it overlaps with "law and economics," the university-based research discipline that focuses on the more theoretical aspects of the effects of legal rules, particularly rules concerning property rights. I will focus here on forensic economic consulting, services offered mainly to law firms and occasionally to individual companies and judicial systems. As explained in the first issue of the Journal of Forensic Economics in 1987, "The primary focus of the research of the forensic economist is the measurement of market loss (damages) arising from market failures, contract disputes or torts. Taking the law as given, the forensic economist applies economic theory to the problems of valuation presented in litigation." (Ward and Olson, 1987).

The ways in which economists work within the forensic consulting field are numerous but most commonly involve the estimation of pecuniary damages in litigation. A business lawyer may request that an economist project lost profits for a business that suffered a breach of a contract to deliver raw materials. Employment and personal injury attorneys use economists (and sometimes accountants and actuaries) to estimate lost wages and fringe benefits due to alleged employment discrimination, or due to the inability to work following an automobile accident. Family lawyers ask economists to help value pension plans and to address issues of financial support. An economist may also be engaged to render an opinion concerning causation (i.e., liability), such as analyzing the presence of monopolistic practices for an antitrust matter.

Although the term "expert witness" is often used to describe this field, forensic economists will tell you that the time spent actually testifying - in deposition, arbitration, or trial - is a tiny portion of their work. Most of the forensic economist's time is devoted to planning and conducting the analysis that may eventually culminate in expert testimony, but which more probably will be used by the litigants and their counsel to settle a dispute outside of court.

Although a small number of institutions offer college-level courses in forensic economics, forensic consulting is an accidental profession. An attorney might know an economist from his neighborhood and ask him to help with a personal injury case. A consulting economist might find that one of his corporate clients is the subject of a business tort action, such as fraud, and be requested by corporate counsel to review the damage claim submitted by the plaintiff. If the economist finds the initial assignment to be a satisfying experience, a forensic consulting practice may be born. A good job in a consulting role opens doors for future assignments. A bad job closes them.

Public Policy Economics

Economists working in the public policy arena address issues of housing, education, health care, employment and training, government efficiency, and more. They provide assistance to governmental units, trade associations, policy organizations, and private firms, both nonprofit and for-profit. As such, consulting economists may come to the field from government or business, from the discipline of policy analysis, or cross over from urban planning or public administration.

Economists who consult in public policy areas are likely to work within consulting groups rather than independently. This is especially true when consulting assignments require not only financial expertise, but the services of other professionals as well. A city planning department may use economic consultants to analyze the impacts of various community development alternatives. A city finance department may want to investigate using a tiered structure for business license taxes. A trade association may engage economists to measure the negative impact that a proposed governmental regulation would have on businesses. Or a state agency may request that economists analyze and recommend funding mechanisms for new school construction.

Due to the amorphous nature of public policy itself, consultants working in this field tend to spend a fair amount of time ascertaining the exact nature of the assignment. What questions are the policymakers trying to answer? Are there any policy alternatives that are deemed infeasible - for equity, legal, or political reasons - right from the start? Written proposals are typical in this field and can consume a material amount of time. Typically, public policy consulting work is performed for a flat or tiered fee, while forensic consulting work is performed on an hourly fee basis.