Charles C. Fischer is a Professor in and the Chair of the Department of Economics, Finance, and
Banking, Pittsburg State University. He is also the Editor-in-Chief of the Journal of Managerial
Issues.
In the wake of recent high-profile criminal cases critically involving forensic investigation and
testimony, like the O. J. Simpson case, concerns regarding the credibility, competence, and
ethics of forensic experts have been voiced by analysts and the media. Are forensic experts
merely "hired guns?" This article explores this question with respect to one important area of
forensics, namely economics. [This article draws from and builds upon related works by
Fischer 1987, 1991, 1992, 1993.] The ethics of forensic economics has been
subject to critical attack within the profession itself. [e.g., Berg 1987,
Havilresky 1989, Fox 1991, Johnson
1995, Depperschmidt 1994]
Given the entrepreneurial nature of forensic economics, a market perspective is taken
in this study. The ethics of forensic economics is examined in terms of qualitative market
failure. First, the notion of ethical behavior is explored as it applies to forensic economics.
This is followed by an examination of qualitative market performance in forensic economics.
From this examination, the ethics of forensic economics is evaluated. The article closes with
some proposals aimed at strengthening the ethical performance of forensic economics.
Forensic associations have taken such an approach by adopting a code of ethical
conduct for their members. The American College of Forensic Examiners [1995] has
adopted the following code:
To thoroughly examine and analyze the evidence in a case, to conduct examinations
based on established scientific principles and render opinions having a basis that is
demonstratively reasonable.
Not to intentionally withhold or omit any findings or opinions discovered during a
forensic examination that would cause the facts of a case to be misinterpreted or
distorted.
Never to misrepresent my credentials, education, training, experience, or membership
status.
To be forever vigilant of the importance of my role and conduct myself only in the most
professional manner at all times.
An important alternative to institutional control, such as professional certification, is
market discipline. In forensic economics, where institutional control is lacking, a critical
issue is whether the market for forensic economics is an effective discipline mechanism. Can
the market be relied upon to ensure the ethical behavior of forensic economists? And, if not,
what can be done to enhance the ethicality of the profession. These key issues are the focus
of the remainder of this article.
Qualitative market failure, on the other hand, exists when producer output lacks the
desired qualitative characteristics. In the case of forensic economics, a "desirable"
qualitative market outcome is the ethical behavior of forensic economists, as specified by an
ethical code of conduct.
Key factors determining the qualitative response of a market are ease of supplier entry
(and exit), consumer choice, buyer-seller relationship, and information competition. [see, for
example, Akerlof 1970, Gomez-Ibanez and Kalt 1990]
Each is examined below with respect to the qualitative competitiveness of the market for forensic
economics. Implications are then drawn regarding the ability of the market to discipline unethical
behavior.
In assessing the market for forensic economics, it is important to understand the
relationship between ethicality and market efficiency. From the time of Adam Smith,
orthodox economists have recognized that socially efficient market outcomes do not depend
upon the ethical intent of the parties. Market discipline will, as an "invisible hand," take
care of that. In competitive markets, ethical intent is not necessary for market efficiency.
However, if markets are not sufficiently competitive, then the ethicality of the parties is both
relevant and problematic for market performance outcomes.
Entry barriers are not significant in forensic economics. The market is easily accessed
by individual forensic entrepreneurs. [Sattler 1991, Johnson
1991a, Adams, Brookshire and Slesnik,
Free entry is an important element of quality competition, but, ironically, in and of
itself it can be a threat to quality. Those who argue for professional control mechanisms
point to ease of entry as a problem--since anyone can easily set up shop as a forensic
economist, there is little quality control. [Piette, 1991] The legitimacy of this
concern should be evaluated in the context of the other key determinants of qualitative market
performance. What about the demand side, that is consumer choice?
Consumers have considerable free choice in the market for forensic economists.
Lawyers and their clients may shop among alternative forensic economists and choose the
one they desire. However, perfect access does not exist since the desired expert may turn the
case down for a variety of reasons (e.g., heavy case load, doubts the integrity of the case).
This is of negligible significance in most cases because the market is national, or even
international, in scope. [Parkman, 1987]
Consumer free choice is the complement of supplier free entry in ensuring qualitative
competition. Together, they mean that consumers have the option of freely choosing from a
wide variety of suppliers, and a relatively large number of suppliers are placed in
competition with each other for consumers. The quality of the good or service produced is
an element of this competition.
To remain totally objective and use my ability so that justice is served by accurate
determination of the facts involved.
The National Association of Forensic Economics
has adopted a similar code [National Forensic Center, 1989] as illustrated by the following excerpts:
...decline involvement in any litigation where I am asked to take or support a
predetermined position....
Whether I am engaged by the plaintiff or the defense, my approach, methodology and
conclusions should, in the end, be essentially the same.
...provide my employing attorney with the full benefit of my knowledge regardless of
how it may affect the outcome of the case.
Such codes of ethical conduct, though containing some ambiguity, provide a reasonably
good operational framework for guiding the behavior of individuals. They set forth what
should be done ideally. However, a code of ethical conduct, naturally, cannot guarantee
compliance by individuals. Some professions have attempted to enforce their code of ethical
behavior through professional control mechanisms, primarily certification and decertification
processes. [Johnson, 1991a and 1991b] However, in forensic economics there
are no professional enforcement mechanisms, and evidence points to strong resistance within the
profession to professional control. [Brookshire and Slesnick, 1991]
Competition is essential to qualitative market performance, and the ability of suppliers to enter (or
exit) the market is essential to competition. Producers are not always free to enter a market
because of market barriers. Common barriers are economies of scale and/or scope, supplier
control of essential inputs, predatory or entry-limit pricing, product differentiation, sales and
brand promotion (e.g., brand proliferation), accessibility of financial capital, specialized
knowledge, and collusion. [Daniel, 1984]
Related to the issue of consumer choice (access to suppliers), is the nature of the buyer-seller
relationship. Qualitative market performance depends in part on the existence of an "arms length"
relationship between the supply and demand sides of the market. In an arms length relationship,
there is no vested interest in the other side's position. [Bowers and DeCenzo,
1992]
In forensic economics, the legal process fosters an arms length buyer-seller relationship. This
relationship is subject to rigorous scrutiny by opposing counsel (unlike many business
transactions). The credibility of the expert-client relationship depends on being able to
demonstrate that it is arms length in nature. For example, an expert whose fee is contingent on
the size of the award or who is representing his/her spouse would have little if any credibility in
court.
However, there are more subtle ways to subvert an arms length relationship, which are
not so apparent. Consider the case of the forensic economist who manipulates his/her
opinion to favor the plaintiff. This behavior, which is openly condemned by the American
Association of Forensic Economics, may be used by the expert to negotiate a higher fee for
his/her services. In this case, the expert is selling not only expertise, but "him/herself."
Will the market for forensic economists effectively police such unethical behavior? It
depends largely on the quality of information competition.
How well does the market for forensic economists meet this criterion? The answer is,
in short, not well. Information competition is problematic in forensics in general, but it is
particularly troublesome in forensic economics. There exists an information asymmetry in
forensic economics, which results in the quality of forensic services not being rigorously
tested. For comparative purposes, consider the presentation of forensic evidence in the
recent O. J. Simpson case. Each side throughly presented forensics regarding the merit of
its own position and the weaknesses of opposing council's. Though confusing at times, there
was robust expert information competition. This rarely happens in forensic economics,
especially when liability is uncertain. [Ireland, 1991]
Defense lawyers do not like to employ forensic economists to oppose the plaintiff's expert in
court. To do so would mean having to come up with their own assessment of economic damages,
which may imply liability in the eyes of the judge and jury. Defense economic assessment gives
some credibility to the plaintiff's charge of economic damages. But, even when liability is certain,
it may not be a good idea for the defense to offer a damages report. [Ireland, 1991] It can be a
no-win situation. If estimated damages by the defense are unrealistically low, credibility is lost.
But, if the damages are realistic, then there is the risk of establishing a monetary floor for the
judge and jury. It is unlikely the jury would go below the defense's own floor, and it is quite
possible that the jury would go above the floor by splitting the difference between opposing
loss estimates. For these reasons, plaintiff economic experts usually present their case in
court without direct opposition by opposing economic experts.
There will, however, be some type of scrutiny by the defense. The defense lawyer will
likely employ an economic expert to critique plaintiff's economic expert report behind the
scenes. The defense lawyer then uses this critique in his/her cross-examination of the
plaintiff's expert in court. However, this usually does not result in robust information
competition. It tends to be a one-side battle, favoring the expert. [Belli,
1982] It is impossible for the defense attorney to properly prepare--anticipate the possible
different directions that may be taken by the expert--and to be as knowledgeable as the expert.
(The author was told by a highly successful defense lawyer that "he never has been able to 'nail'
an economist in court.") Even when the defense lawyer is able to hold his/her own with the
plaintiff's economic expert, the expert is likely to have more credibility with the judge and
the jury, since, unlike the defense lawyer, his/her fee (usually) is not contingent on the
outcome.
The critical weak link in the qualitative response of the market for forensic economists
is inadequate information competition. The unique (asymmetrical) nature of expert
testimony in forensic economics compromises the qualitative performance of the market.
This has raised concerns about the ethics of forensic economics. [Fox 1991,
Carlson 1986]
In the next section we set forth some proposals for remedying this problem. Before
doing this, let us pause a moment and play "devil's advocate." Is this a problem worthy of
such attention and, relatedly, are not most markets plagued by information asymmetry?
Why focus on forensic economics?
Certainly, informational asymmetry is widespread, as evidenced in such markets as
real estate, used cars, and financial. Here, the seller has the "inside track" on information.
Yet the market for forensic economics is particularly vulnerable to this problem. In forensic
economic litigation the jury is limited to inside information--that which is provided in court
and mainly by the plaintiff's economic expert. The jury must make judgments regarding
complex economic issues. They come to the jury process as naive participants (i.e., no prior
knowledge of the case or the methods of forensic economics) and with no training in
economic reasoning. In this setting, the plaintiff's economic expert uses his/her monopoly
power over information to build the case for economic damages. A good case, along with
some convincing emotional appeal by the plaintiff's lawyer, can and often does result in very
large economic damage awards.
In contrast, other markets usually are not dependent on inside information; rather
they combine outside and inside information. For example, if one does not know anything
about cars in general and/or the desired used car in particular, he/she can have an
independent garage assess the car in question. Likewise, home buyers can hire independent
inspectors and appraisers, and mutual fund investors can hire the services of an independent
financial counselor. Alternatively, one can take the time and effort to "educate" him/herself
to become somewhat of an expert. This may not lead to information equality, but it can
greatly reduce seller monopoly power over information.
The jury in forensic economic litigation has no outside informational alternatives
available under the current system. It is a naive captive of the economic expert.
The market for forensic economics seems deserving of special attention due to both
the size of the awards at stake and the uniqueness of its information asymmetry. It is of no
small consequence that we all pay for the former, in one way or another.
In this section, we look at ways ethicality may be addressed from a market perspective.
The goal is to improve the qualitative/ethical performance of the market via market policies.
But, it should be noted that some favor nonmarket approaches instead. [Johnson,
1991a and 1991b] The two most common are: (1) professional certification, and (2)
enforcement of an ethical code of behavior. [Bayles, 1989] These are
natural complements in that the goal of professional certification is to set and promote
professional qualitative standards, which, in turn, begs the enforcement issue.
The reason for taking a market approach here is essentially twofold. One, as
mentioned above, current (preliminary) evidence suggests strong resistance to institutional
intervention by forensic economists in this country. [Brookshire and Slesnick,
1991] Second, market approaches have the appeal of treating the problem itself (while
institutional responses tend to be more symptom oriented), and being self-enforcing via the
discipline of the market. Critics, however, argue that markets are incapable of satisfactorily
addressing ethical issues, and that direct institutional intervention is called for. [e.g.,
Johnson 1991a and 1991b] While this important debate is beyond the scope of
this article and will not be settled soon, it seems safe to conclude that market policies will remain
an important part of the search for improving the ethicality of forensic economics.
Two market approaches are set forth below, namely restructuring the trial process and
third-party assistance. Both are aimed at enhancing the qualitative performance of the
market in terms of an ethical code of conduct.
This may hold promise for forensic economics. For example, consider a similar two-phased approach in personal injury and wrongful death cases. Phase one could consist of determining liability. If liability is found, then the trial would move on to the second phase where economic damages are determined. Since liability is no longer at issue, defense lawyers would presumably be more inclined to use an economic expert in court. Hopefully, the judge and jury would benefit from a two-sided debate on the merits of economic damages.
However, even with this restructuring, the playing field would still tend to favor the plaintiff due to the reluctance of defense attorneys to establish an economic floor for the judge and jury (as noted earlier). As such, restructuring the trial process so as to isolate liability from economic damage assessment is only, at best, a partial remedy. Additional measures would likely be needed. Also, there is the problem that such restructuring would be strongly resisted by conservative legal institutions (e.g., law schools and lawyer professional associations) and, naturally, defense attorneys, who presently enjoy a near monopoly advantage in economic testimony. [see Colella, Johnson and Tinari, 1995]
What would guarantee that the neutral was both competent and ethical? And, even assuming the best-case scenario of competence and ethicality, true neutrality may be unattainable. Forensic economics is part science and part art. Rarely is there a best methodology for estimating economic damages. Certainly, choice of methodology may be affected by the training and background of the forensic economist. [Brookshire and Slesnik, 1993] Consider the diverse, and sometimes conflicting, schools of thought in economics (from the narrow confines of homo economicus to the much broader models of socio-politico-economy).
Court-appointed neutrals are no panacea for inadequate information competition. Nonetheless, imperfect neutrals may be an improvement over the present monopoly power of plaintiff lawyers.
A second and complementary form of third-party assistance is to provide better information outside the trial process to those involved in economic forensics. For example, lawyers and experts could be better educated on issues of ethicality in forensic economics. Professional associations have an important role to play here. Ethical standards should be established and made known to the parties. This has been done by some forensic associations (as discussed at the beginning of this article). It is noteworthy that the American Association of Forensic Examiners requires individuals to pass a rigorous test on ethical standards in order to become Board certified. (These questions are based on complex ethical scenarios, and are not available for public dissemination.) Forensic economic associations might pursue similar "sensitivity" activities to cultivate ethical awareness among their members.
Similarly, defense attorneys may be better educated on their strategic role in economic damage cases. [Malone 1988, Parkman 1987, Spizman 1995] Defense economists can play a direct role with respect to preparing defense attorneys to successfully cross-examine plaintiff economists. At a broader level, professional associations in forensic economics can help educate regional and national defense council organizations on the role of the defense in forensic economics. Academic and practitioner journals sponsored by these associations (e.g., Journal of Legal Economics, Journal of Forensic Economics, Litigation Economics Digest) can provide a useful forum for new research and debate on this issue.
These strategies for improving information and educating the parties, along with restructuring the trial process, offer ways to improve the qualitative/ethical performance of the market for forensic economists without controlling the market. These are not offered as solutions, but rather as fuel for this important debate.
The parties involved also have a big stake in the integrity of forensics. Economic damages awarded by the courts can run in the millions of dollars and thus dramatically affect the financial interests of the parties. Unethical behavior compromises those interests.
Finally, society must be concerned with the ethicality of the profession, for often it is the general consumer and/or taxpayer who pays for inflated economic awards. A dramatic example of this problem relates to the recent sharp increase in wrongful death awards under hedonic damage methodologies. [see 1991, Havrilesky 1995] Usually, these awards are paid for via increased insurance premiums (e.g., auto, medical malpractice). Here innocent third-parties pay the bill for inflated economic damages. (This is not to suggest that all who use hedonic damages are unethical, but rather that hedonic damage awards have provided much opportunity for unethical, inflated economic awards and some experts appear to have seized that opportunity.)
In this article, we approached these issues by examining the qualitative/ethical performance of the market for forensic economists. We then identified the market's weak link, namely information competition, and proposed ways to remedy/reduce the information problem via the market mechanism. Emphasis was placed on restructuring the trial process so as to better facilitate the use of defense economic experts, providing better economic information to the parties, and educating the parties so that they can better utilize this information.
It is important to note that only corrective market proposals were examined in this article. As mentioned above, some favor institutional approaches, such as professional certification. The author, along with most economists, views such approaches as risking a case of the "cure" being worse than the "disease." Both economic theory and experience show that such barriers to entry, while done under the guise of protecting consumers, usually benefit suppliers by enhancing their monopoly power. The result in forensic economics would probably be to raise the economic rents of "qualified" forensic economists, but would not likely increase their ethicality. Market restructuring, while no panacea, seems best for improving the ethicality of forensic economics.
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