Originally from World Arbitration and Mediation Review

I.   Introduction

Certain commentators argue that prejudgment interest should be set as the claimant’s opportunity cost of capital.  Abdala, López Zadicoff, and Spiller argue that prejudgment interest should be “linked to the cost of capital of the affected business.”  Their argument rests on what they term an invalid round trip:  “An invalid round trip occurs whenever the [prejudgment interest] is set at a rate that differs substantially from the rate at which expected future losses are discounted to the valuation date.”  In this Note, we show that the invalid round trip argument for using the claimant’s opportunity cost of capital to determine prejudgment interest lacks a basis in economic principles because it ignores the effect of uncertainty inherent in profit projections.