I am disgrac’d, impeach’d and baffled here-
Pierc’d to the soul with slander’s venomed spear.
-Richard II, Act 1, Scene 1

Readers of this space will recall that in last issue’s column I spoke to the value of a good name in the world of personal finance as it relates to one’s creditworthiness. But what about personal or business reputation? Through malice, greed, or just simple laziness, defamatory statements can venomously “pierce” you. The damage due to defamation can seem an unreasonable burden as it seeps through your personal life and professional career in seemingly intangible ways. But an economist can provide opinions regarding the tangible damages to reasonable degree of economic certainty.

Not just individuals, but for-profit businesses and non-profit organizations can also be defamed with long-lasting and far-ranging impact. Through social media, a defamatory accusation can quickly become “viral,” and falsehoods can spread around the web and the world in an instant, reducing the value of your brand and your company in the eyes of customers and prospects. An economist can calculate a projection of business, but for the defamation, in comparison to what business remains in the wake of the defamation.

Defamation of Individuals

Where would you be in your career without the reputation that you have worked so hard to establish? The false tarnishing of a reputation can strip away years of professional accomplishment or permanently damage a promising career in its infancy. The derailment of a career through defamation can result in considerable damages, both financial and emotional. Forensic economists, using standard approaches, can assist in evaluating the losses.

In one instance I have seen, a physician rightfully accused of theft by padding his billing sought to take down others with him, and falsely accused a colleague of the same practice. The honest physician was wrongfully terminated from his position, spent months unemployed and could not find new employment in his metro area. In order to maintain his family, he was forced to take a job hours away – requiring him to stay out of town for days each week while his family remained at home. In this instance damages were shown for the past loss when the doctor was unemployed, but also for the difference in his earning in his new position and the costs of travel and maintaining a second residence for this new position.

Frequently defamation occurs when an individual is early in a career, looking to make the next step to professional success. Consider a talented junior researcher who is applying for a doctorate program, but whose boss makes false statements in a letter of recommendation in order to keep this researcher working in his laboratory. For this junior researcher fighting to restore her good name, her opportunity to earn a doctorate degree will be delayed, or even could be stopped cold and her career will remain at the level of a junior researcher forever. A delay several years in obtaining a doctorate degree means a loss for several years of the six-figure salary that an individual can earn with such a credential. A delay in career is a lifetime loss. If opportunity to earn a doctorate degree is completely lost because of the defamation, then permanent difference in earnings for two projected career paths can be calculated.

At the other end, I have seen educators forced to retire early due to false accusations that they did not protect students, when in fact they were the strongest protectors of students. Early retirement leads to not only years of lost earnings in employment, but also a reduction in pension income when one needs to take pension benefits at an earlier age.

In each of the examples above, in addition to the loss of earnings, the individuals also have a considerable impact to their social and emotional well-being. Claims can be made and testimony can be provided for the loss of enjoyment of life, well-recognized in the State of Nevada (See my column in Vegas Legal, August 2016 “Economic Damages in Nevada).

Victims of defamation frequently report going through protracted emotional turbulence and upset, experiencing significant loss of enjoyment of life. These damages can persist long after the defamation is made – victims of defamation in early life frequently report difficulty trusting others in all areas of life, leading to impaired interpersonal relationships. In addition, while the initial defamation could spread like wildfire, the spread of the truth to mend one’s reputation may not spread with such enthusiasm, leaving the defamed unsure of who knows the truth and who believes false accusations. The impact on one’s career can lead to the loss of identity from one’s occupation, as well as the loss of relationships with professional colleagues. The standard process for evaluating the loss of enjoyment of life applies in these instances.

Defamation of Businesses and Organizations

Social Media and online review sites, while frequently helpful as a tool for reaching new and existing customers, can also be forums to false statements to push away customers. Defamation can be ongoing while the false review still stands, or can even spur additional false statements among falsely alarmed customers. Such information may remain forever on the web.

Using standard economic practices, a forensic economist can calculate the damage to a business from defamation. A business does not have to close or experience annual losses for a loss to exist from the defamation. The business could still be operating “in the black,” but have a reduction in profits from a reduced sales or reasonably expected future growth in sales. Consider a chain of restaurants wrongfully accused of racial bias in serving customers. This chain that was once opening five new locations per year could now find itself opening only a single location each year (or even closing locations). The growth of the business could be based on the past growth trend, or a trend based on comparable operations. In the instance of sales lost at a single location, an economist would consider the loss of profit from each customer after the marginal costs associated with serving each customer. Fixed costs, such as rent and utilities, are largely incurred no matter the amount of sales, and have been incurred by the business to date. Defamation can lead a business to have additional costs for marketing to reach out to disaffected customers, and promotions such as offering discounts to entice new business.

While we would hope that those that do good can be spared by defamation, it is an unfortunate occurrence that also needs appropriate attention. A defamatory statement about a church leader, or a church or other not-for-profit organizations can set off public mistrust leading to reduced donations, and it can impair the organization’s ability to do important public good. A projection of expected donations can be made against the actual donations following the defamation, again using standard economic practices.

I hope that no one finds themselves in the position of fighting off spears of slander or libel. Often the damage can be permanent. However, an awareness of the methods to calculate damages and opportunities for restitution can lead to a significant recovery.

Stan V. Smith, Ph.D., is VLM’s Quarterly Economics Columnist and president of Smith Economics Group, Ltd., headquartered in Chicago. Trained at the University of Chicago (one of the world’s pre-eminent institutions for the study of economics and the home of the law and economics movement), Smith has also taught at the university and co-authored the first textbook on the subject of economic damages. A nationally-renowned expert in economics who has testified nationwide in personal injury, wrongful death and commercial damages cases, Smith has assisted thousands of law firms in successful results for both plaintiffs and defendants, including the U.S. Department of Justice. To that end, Smith also developed the first course in forensic economics at DePaul University, and pioneered the concept of “hedonic damages,” testifying about the topic in landmark cases. His work has been featured in the ABA Journal, National Law Journal, and on the front page of the Wall Street Journal. Kyle Lauterhahn is a Senior Economic Analyst at Smith Economics Group in Chicago. Smith Economics Group, Ltd., is located at 1165 N. Clark Street, Suite 600, Chicago, IL, 60610. Dr. Smith may be reached at 312-943-1551, and at Stan@SmithEconomics.com.