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The Economics of Business ValuationTowards a Value Functional Approach$
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Patrick Anderson

Print publication date: 2013

Print ISBN-13: 9780804758307

Published to Stanford Scholarship Online: September 2013

DOI: 10.11126/stanford/9780804758307.001.0001

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Applications: Law and Economics

Applications: Law and Economics

(p.306) 18 Applications: Law and Economics
The Economics of Business Valuation

Patrick L. Anderson

Stanford University Press

This chapter demonstrates applications of the value functional or recursive approach to topics in law and economics, including the effects of government policy on business decisions, and the estimation of economic damages incurred due to breaches of contracts. The effect of uncertainty in future government policies on private sector hiring decisions is one topic for which the value functional method provides an insight that is lacking in the standard neoclassical model. The author presents a model in which managers maximize value, rather than maximize profit. In such a model, businesses may rationally reduce current hiring due to the risk of policies that would impose higher costs in the future. The value functional approach also provides powerful methods to estimate commercial damages in breaches of contract involving intellectual property, new businesses, the ability to open or expand operations, and other situations commonly arising in business.

Keywords:   Law and Economics, commercial damages, economic damages, forensic economics, intellectual property, breach of contract, reasonable royalty, value functional method, recursive method, rational expectations

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