Total Offset Method: Is It Appropriate? Evidence from ECI Data

The purpose of this paper is to re-examine the assumptions underlying the total offset method advanced in the 1967 Alaska Rule and relied upon by some practitioners in the calculation of economic damages in personal injury and wrongful death litigation. The structure of this paper serves as a complement to the previous time series research on the behavior of net discount ratios and net discount rates and provides statistical tests designed to investigate the validity of the assumptions underlying the total offset methodology. Although the total offset method is easy to implement and can be quickly interpreted by a jury, the assumptions do not appear to be supported by the data. The combination of the empirical time series research on net discount ratios and net discount rates and the tests of the underlying assumptions presented in this paper provide compelling evidence against the use of the total offset method of calculating economic damages.