How do Economists Approach and Understand COVID-19 Implications?

By IMS Insights Podcast

In this exclusive expert video briefing from the IMS COVID-19 Research Insights Series, we speak with economist Donald House about the implications of the COVID-19 pandemic from an economist's point of view.

Don House:  We're not really testifying as to what we think the cause was. We’re testifying of what things do we observe that is consistent with the allegation of the source of the cause?

Chris Ritter: And then you've also already talked about the use of history to try to help determine both historical as to that specific entity, but they've historically done in the past. But also, history of the industry as a whole. So, the history of an individual store as well as the history of the industry overall?

House: That's correct. And this is really looking at two different methods. There's actually three but two different methods of trying to calculate what would have happened absent the conduct. In this case we would be asking the question, what would have happened in the absence of COVID-19? And if we have a good history, then we merely look at perhaps sales during the summertime and spring. In past years, to estimate what sales might have been in the absence of COVID-19, that's kind of looking at before and after. The other is finding a benchmark. That is, finding some businesses in your industry that escaped COVID-19. And then you see what they did to measure the impact of overall demand and things like that. It may be that you can't find a comparable, but that's what you would normally search for.

And then the other would be in fact if it's a new business, and this kind of a third way of looking at patterns of market shares. That is, if we can identify what a first mover and a second mover and a third mover in a market, generally the pattern of gains in market shares. And the plaintiff here is a new business that for some reason was never able to get started well or was well started and it was terminated. Then we can look at patterns of market shares and studies and use that as a benchmark as well. So we have all three available to us. And hopefully, one of them will give us some very good evidence from which we can then determine what sales should have been in the absence of the alleged conduct.

House: And that is really part of the fun of the puzzle. It's an enjoyable exercise. You learn a lot in the process. But you're almost an investigator to try to put all of these things together in a coherent way to where it all makes sense and you think the output or the outcome of what you've measured is reasonable and passes all the smell tests and other comparables that you might have available to you.

House: Another category would be lost opportunities. And sometimes these are hard to pin down but sometimes not. If in fact you had a person that was infected with COVID-19. But then so that shouldn't have happened, perhaps he was served in a fast food restaurant and there was a clerk that served them and the clerk had fever and shouldn't have been there, but he contracted the virus. And then had to remain in his home for two weeks, but it was during a training session where he would be a trained and certified technician. There were jobs available to him. But he had to drop out of that training session. But the training session is only administered once a year. So he had to wait another year before he could go to that training session. And perhaps the training session was filled, but maybe he couldn't even get in because he had withdrawn from the previous training session. Hard to get in, expensive but a job is always waiting.

Now you're asking yourself, what are the damages associated with that incident of an unfortunate contagion of COVID-19 that could credibly be linked to the failure of a company to do the standard kind of prevention techniques? Well, that particular individual was not able to get into the training session for which there was a job waiting. The person mitigated his damages by getting another job, but at a much lower salary than otherwise would have been. So you have a year of a low salary whereas before they would have already started a career as a trained technician for which they're in high demand. And then he tries the next year to get in and could not get in because of the record of dropping out of the previous one. Still, the number of seats are in high demand.

So, there you have a fairly interesting set of circumstances. The likelihood that he would have completed it if he hadn't gotten sick. That is, there’s a failure rate in the school. Two, would he have actually gotten a job? And three, would he have continued in the job for an extended period of time and received the wages that was consistent or are common in that particular training technician field of service? And then, did he mitigate the damages as well as he could? Did he just take any kind of job and not really try his next best alternative? Maybe a different training job. So, all of those questions bear out. And you have to figure out what is, what is a reasonable set of events? And there you're using some of the probabilities that are available to you. That is, what is the failure rate in the school? You have to take that into account.

What is the tenure of a trained technician? You have to take that into account. What is the life expectancy of the individual? So, all of those things play in the role in calculating reasonable damages associated with that contagion of the COVID-19.

Ritter: So, I hear you saying that in some ways, the lost opportunity just continues to ripple.

House: It does but you have to control it, that is.

Ritter: Right.

House: Yeah. Some of these things that you might think might happen would have a very low probability, and would therefore have a little influence if any, in your calculations. And other things may have very high probabilities that you have to take that into account as well. So you have to look at other things to help support your calculations.

Ritter: I like the notion of containing the ripples in order to figure out what is likely. Is that a fair statement?

House: That is a fair statement. That is a fair statement. And usually you can always find information that helps you along the way. Published tables of life expectancies, published tables of work life expectancies, average salaries of the trained technicians. Taking into account the growth and demand of those services. The obsolescence of maybe the training may come into play after a number of years. All of those things play a role.

Ritter: Well, the computerization and the digitizing of all this information must just explode the various options of things you have to look at.

House: They do. But what they do is give you the tools in which you have confidence in coming up with what you think is a reasonable calculation of damages. I grew up at a time when the computers were coming online. And developing the tools like regression analysis, statistical analysis that are available to you and data that is available, that wasn't here in previous generations. So, what we have today is enormous amounts of information, statistical tools with which you can make some inferences that would be helpful in your work. Whereas in days past, those weren't there. So, as you move through the path with a passage of time, your work really gets richer and richer because of the added information that is available and the more sophisticated tools you have at hand. So, it's really more fun to do this work today than it was even twenty years ago.

In Depth Analysis

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Dr. Don House is an economist, litigation consultant, damages expert, the president of RRC Inc., and an IMS Elite Expert contributing thought leadership. Dr. House is published in many leading professional journals and has also testified in a number of trials. Read more about Don House>>

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