Calculating Economic Losses from Wrongful Incarceration

The number incarcerated in U.S. federal or state prisons remained at or below about 200,000 during the 20th century until the mid-1970s, when incarcerations began dramatically increasing.[1] Shown in Figure 1, by 2008, more than 1.6 million were incarcerated,[2] which is a 700 pecent increase since 1975.[3] After 2009, this number has decreased somewhat,[4] but the United States still has more people in prison than any other country in the world. About 25 percent of the world’s prison population is in the U.S.[5]

Some attribute increased incarceration in the U.S. to policies adopted beginning in the 1980s, such as tough-on-crime laws and the war on drugs.[6] These and related polices are believed to have increased prison sentencing and lengthened prison durations through minimum sentencing requirements, three-strikes laws, reduced opportunities for parole and larger portions of sentences served because of truth-in-sentencing laws. Quite possibly as a result, crime in the U.S. declined during the 1990s.[7,8]

Figure 1: U.S. Incarcerations
The number incarcerated in U.S. federal or state prisons remained at or below about 200,000 during the 20th century until the mid-1970s, when incarcerations began dramatically increasing. By 2008, more than 1.6 million were incarcerated, a 700 pecent increase since 1975. About 25 percent of the world’s prison population is in the U.S.

However, Professor John Pfaff of Fordham Law School suggests increased incarceration is instead because of local district attorneys becoming more aggressive in their prosecution efforts.[9] Pfaff explains that criminal activity and arrest rates have fallen over the past 25 years, and conviction rates and the average amount of time served have been flat over time, so increased incarceration could only have resulted from district attorneys being more likely to file felony charges against those arrested.

Undoubtedly, some who are convicted are innocent. Scholars disagree — in some cases, vehemently — on what the rate of wrongful incarceration might be. The Innocence Project cites a range of 2.3 percent to 5.0 percent of prisoners.[10] Professor Samuel Gross of University of Michigan Law School reviewed a number of studies using different methodologies and concluded a range of 1 percent to 5 percent is reasonable.[11,12] Quite differently, United States Supreme Court Justice Antonin Scalia cited a wrongful incarceration rate of 0.027 percent — and a 99.973 percent success rate — in a concurring 2007 Supreme Court opinion.[13] Causes of wrongful incarceration include witness misidentification, improper or invalidated forensics, false confessions and admissions, informants and snitches seeking or receiving pay, deals or special treatment, and improper legal defense.


Much more is known about exonerations. Beginning in 1989, the University of Michigan Law School began tracking exonerations, and its national registry indicates during this quarter-century period there have been 1,747 cases of exoneration, defined as instances where an individual was (wrongfully) convicted of a crime and was then later cleared of all charges.[14] The average length of time served for those exonerated is nine years.[15] The number of annual exonerations has been increasing over this time.[16] Only a small minority — 337[17] — are DNA exonerations (e.g., 26 of 149 exonerations in 2015 were DNA exonerations).[18] The first DNA exoneration was in 1989.[19] Surprisingly, the yearly number of DNA exonerations has not noticeably increased the past 15 years; increases are being driven by non-DNA exonerations.[20]

An individual wrongfully incarcerated may attempt to recover damages under 42 U.S.C. § 1983 (often referred to as a “1983 action”).[21] These actions are suits against public officials accused of violating a plaintiff’s constitutional rights, and they are designed to compensate for past abuses. However, winning “1983 actions” is potentially difficult because many government officials — including judges and prosecutors and, perhaps to a lesser degree, police officers — are essentially immune.[22] Winning these actions is also difficult because the plaintiff must prove all the elements of a constitutional violation. In Heck v. Humphrey,[23] the U.S. Supreme Court held that damages under 1983 actions are barred when the plaintiff’s original conviction (or sentence) has not been “reversed on direct appeal, expunged by executive order, declared invalid by a state tribunal authorized to make such determination, or called into question by a federal court’s issuance of a writ of habeas corpus” (28 U.S.C. §2254).[24] Otherwise, through the federal 2004 Innocence Protection Act, under the 2004 Justice for All Act, those wrongfully imprisoned may recover up to $50,000 per year (of imprisonment) under the federal compensation statutes (28 U.S.C. § 1495; 28 U.S.C.A § 2513).[25]

Compensation for Wrongful Incarceration

In addition to the federal statutes, some states (about 30) have passed legislation that provide compensation for wrongful incarceration. Tennessee is one of these states. Tenn. Code Ann. § 9-8-108 specifies that a board of claims shall hear petitions for monetary compensation from those wrongfully imprisoned who are later exonerated.[26] Lost earnings are specifically noted as one of the items for which compensation for wrongful imprisonment may be made.[27] However, the statue states that the total aggregate compensation cannot exceed $1 million, and the claim must be filed no later than one year after the exoneration date.[28]

A visual summary of state compensation laws for wrongful incarceration is illustrated in Figure 2 .

Figure 2: State Wrongful Incarceration Compensation Laws
States that are not shaded have no compensation statues for wrongful incarceration. Otherwise, most of the states with compensation laws for wrongful incarceration specify maximum amounts that may be awarded for damages but do not mention lost wages and earnings in their statute. These states are shaded in blue. The states shaded grey have compensation laws without a maximum amount specified and they do not mention lost wages and earnings. The yellow states specify a maximum damages amount and explicitly allow damages from lost wages and earnings. Red states do not specify a maximum damages amount but do explicitly allow damages from lost wages and earnings.

Considering Tennessee’s five state neighbors with compensation laws as examples, Mississippi, Missouri and North Carolina have set compensation caps of $500,000 from $50,000 per year of incarceration (Mississippi), $50 per day of incarceration (Missouri), and $750,000 from $50,000 per year of incarceration (North Carolina), and none mention damages from lost wages and earnings.[29] Alabama specifies a minimum amount of $50,000 per year of incarceration and allows discretionary amounts to be added to this base.[30] Virginia provides an amount equal to 90 percent of the state’s per capita income for each year of incarceration.[31]

Tennessee’s allowance of wrongful incarceration damages from lost earnings raises the question of how such losses should be measured. Tennessee case law provides virtually no guidance for calculating economic losses from wrongful incarceration. In Taylor v. Terry and Williams v. Davidson County Sheriff’s Office, the court ruled against the plaintiff because suit was filed more than one year after the wrongful imprisonment.[32]

In addition, no published study in the forensic economics literature provides guidance for these calculations.[33] This potentially leaves much of the analysis to the discretion of the economics expert. It would seem reasonable for economists calculating economic losses from wrongful incarceration to borrow from the methodologies used when calculating economic losses from personal injury (PI), wrongful death (WD) or employment termination (ET).

Lost earnings and employment benefits could be calculated as in PI and WD cases based on lost earnings capacity.[34] Certainly while incarcerated, private employment is not possible. The same might be true of lost household services, which is a component often included in PI and WD losses.[35] The courts in PI and WD cases provide factors to consider when calculating lost earnings, including the injured party’s “expectancy of life, the age, condition of health and strength, capacity for labor and for earning money through skill, any art, trade, profession, occupation or business, and personal habits as to sobriety and industry.”[36]

As with PI, WD and ET cases, the economist should consider the extent to which earnings and employment benefits (and the value of household services) would have grown over time,[37] but acceptable rates in Tennessee PI and WD cases have not been addressed for earnings growth.[38] Tennessee courts also direct future losses to be discounted to their present value, defined as “the sum of money needed now which, when added to what that sum may reasonably be expected to earn in the future when invested, would equal the amount of damages, expenses, or earnings at the time in the future when the damages from the injury will be suffered, or the expenses must be paid, or the earnings would have been received.”[39] Acceptable rates in Tennessee PI and WD cases have also not been addressed for discounting economic losses.[40]

Nevertheless, the wrongfully convicted plaintiff, by definition, will have been released from prison and will therefore potentially have the ability to obtain post-incarceration employment. Earnings from this alternative employment could be deducted from the economic losses, as earnings mitigation from subsequent employment would be deducted from the economic losses in an ET case.[41] Tennessee standards provided in Frye v. Memphis State University stipulate that when an employee has been terminated, “there is a duty to minimize this loss by seeking other employment.”[42] If the plaintiff has not yet found alternative employment, then the economist may need to project the extent to which this is possible in the future, given the incarceration, as economists do for plaintiffs whose prior employment has been terminated in ET cases. If a gap does exist in what the plaintiff is projected to have earned, absent the wrongful incarceration, and what the plaintiff is projected to earn after the incarceration has occurred, then the calculations should continue until the end of the plaintiff’s worklife (or until this gap is projected to close).[43] Household services may resume in full upon release. It is also possible that the plaintiff did some work for pay while in prison. If so, then this source of income may be treated as mitigation and deducted from the economic losses as well.

In WD cases, personal consumption expenditures (often referred to as a personal maintenance factor in Tennessee) are deducted from the economic losses because this amount would have been spent if the decedent had, in fact, not died.[44] Similarly, personal consumption expenditures potentially should be deducted from the economic losses during the incarceration period because during that period, food, drink and shelter were provided by the state. Absent the incarceration, the plaintiff would have incurred these expenses.

Economic research concludes that earnings, indeed, are negatively impacted by incarceration. Certainly during the incarceration, employment opportunities are limited — or nonexistent — and hourly wages from any available employment are meager. Studies also show that incarceration has negative effects on labor market outcomes after release. Although these studies do not specifically examine post-incarceration earnings for those who are later exonerated, they do show that incarceration is associated with lower earnings and employment rates after release, relative to peers who have not been incarcerated.[45] For example, incarceration (versus not being incarcerated) reduces post-incarceration income and employment by approximately 25 percent[46] and wages for young men by 10 to 30 percent.[47,48] This may be because (1) the stigma (or untrustworthiness) associated with incarceration makes employers reluctant to hire those after their release,[49] (2) workers miss the opportunity to gain valuable training, experience and skills while incarcerated, and (3) human capital skills previously acquired depreciate while incarcerated since these skills are not practiced and used during that time.[50]

Incarcerations have increased eightfold the last 40 years, and with this increase, undoubtedly, the number wrongfully incarcerated has increased as well. The advent of DNA testing in 1989 has facilitated the exoneration process. Perhaps in response, the federal government and many state governments have passed legislation providing compensation for damages for those exonerated, including lost earnings. While these statutes typically do not provide specific instructions on how to calculate lost earnings from wrongful incarceration, it seems reasonable for economics experts to borrow from the methodologies used to calculate economic losses in PI, WD and ET cases, as appropriate, in an effort to make the plaintiff whole.


  1. These statistics exclude those in local jails and juvenile detention and those on probation and parole. In 2013, federal and state prisons contained 1,575,434 inmates; local jails contained 731,200; 3,910,600 were on probation; and 853,200 were on parole, for a total correctional adult population of 6,899,000 (excluding double-counting).
    Bureau of Justice Statistics, Key Statistics, Prisoners Series, (visited March 1, 2016).
  2. Ibid.
  3. National Research Council. (2014). The Growth of Incarceration in the United States: Exploring Causes and Consequences. Committee on Causes and Consequences of High Rates of Incarceration, Jeremy Travis, Bruce Western, and Steve Redburn, editors. Committee on Law and Justice, Division of Behavioral and Social Sciences and Education. Washington, D.C.: The National Academies Press.
  4. Bureau of Justice Statistics.
  5. National Research Council.
  6. Ibid.
  7. Levitt (2004) attributes declining crime rates in the 1990s to the hiring of additional police officers (on a per-capita basis), increased incarceration rates, a decrease in the crack epidemic, and the 1973 legalization of abortion.
    Levitt, Steven D., (2004). “Understanding Why Crime Fell in the 1990s: Four Factors That Explain the Decline and Six That Do Not.” The Journal of Economic Perspectives, 18 (1): 163–190.
  8. Increased criminal activity could result in larger prison populations (e.g., increased incarceration), increased incarceration could reduce crime (through deterrence or incapacitation), or crime and incarcerations could both affect each other simultaneously. Levitt (2004) uses exogenous shocks to prison populations, generated by “prison overcrowding” litigation in 12 states, in an attempt to identify the causal effect of incarceration on crime, and he concludes that incarceration does reduce crime. Specifically, his results show that reducing the prison population by one inmate would result in 15 additional crimes per year.
    Levitt, Steven D. (1996). “The Effect of Prison Population Size on Crime Rates: Evidence from Prison Overcrowding Litigation.” Quarterly Journal of Economics, 111 (2): 319-351.
  9. Pfaff, John. (2012). “The Micro and Macro Causes of Prison Growth.” Georgia State University Law Review, 28 (4): 1239-1274.
    Neyfekh, Leon. (2015). “Why Are So Many Americans in Prison?” The Slate. February 16, 2015.
  10. The Innocence Project, “How many innocent people are there in prison?” (visited, March, 2016).
  11. Gross, Samuel R. (2013). “How Many False Convictions Are There? How Many Exonerations Are There?” In Wrongful Convictions and Miscarriages of Justice: Causes and Remedies in North America and European Criminal Justice Systems (C. Ronald Huff and Martin Killias, editors). New York, NY: Routledge.
  12. See also Gross et al. (2014), who calculate a 4.1 percent error rate for those on death row.
    Gross, Samuel R., Barbara O’Brien, Chen Hu, and Edward H. Kennedy. (2014). “Rate of False Conviction of Criminal Defendants Who Are Sentenced to Death.” Proceedings of the National Academy of Sciences, 111 (20): 7230-7235.
  13. Kansas v Marsh, 548 US 163, 198 (2006).
  14. University of Michigan Law School, National Registry of Exonerations, About the Registry, (visited March 5, 2016).
  15. University of Michigan Law School, National Registry of Exonerations, Basic Patterns,, (visited March 5, 2016).
  16. University of Michigan Law School, National Registry of Exonerations, Exonerations by Year: DNA and Non-DNA, (visited March 5, 2016).
  17. The Innocence Project.
  18. University of Michigan Law School, National Registry of Exonerations, Exonerations by Year: DNA and Non-DNA.
  19. The Innocence Project, “How many people have been exonerated through DNA testing?” (visited, March, 2016).
  20. University of Michigan Law School, National Registry of Exonerations, Exonerations by Year: DNA and Non-DNA.
  21. 42 U.S.C. 1983 (1996).
    It is also theoretically possible for a state legislature to enact a private bill providing compensation for someone wrongfully incarcerated, but coordinating such an effort, which would require resources and contacts, would likely be difficult in most cases.
  22. For example, see Dotson v. Tennessee, Haynie v. State, Jones v. Tennessee, and Beasley v. Allen.
    Dotson v. Tennessee, 2014 WL 6686744 (M.D.Tenn.2014); Haynie v. State, 2010 WL 366689 (Tenn.Ct.App.2010); Jones v. Tennessee, 2010 WL 1417876 (E.D.Tenn.2010); Beasley v. Allen, 2006 WL 686338 (W.D.Tenn.2006).
  23. Heck v. Humphrey, 512 U.S. 477, 114 S.Ct. 2364 (1994).
  24. 28 U.S.C. § 2254.
    For example, see Taylor v. Terry and Jones v. Tennessee.
    Taylor v. Terry, 2015 WL 5008782 (M.D.Tenn.2015); Jones v. Tennessee, 2010 WL 1417876.
  25. 28 U.S.C. § 1495 (2000).
    28 U.S.C.A § 2513 (2006).
  26. Tenn. Code Ann. § 9-8-108 (2013).
    Other states with statutes may: preclude a recovery if the plaintiff had entered a guilty plea; require a pardon from the governor; or allow compensation only for felony convictions. Some states with statutes specify a maximum daily recovery amount (e.g., $140 per day in California) or a maximum yearly recovery amount (e.g., $50,000 per year in Florida, up to a maximum of $2 million). Some states base compensation on the plaintiff’s earnings capacity, as reflected by prior earnings (in New Jersey) or the state’s per capita income (in Virginia). Others (e.g., Iowa and Ohio) specify lost earnings as recoverable damages separate from compensation otherwise due for the wrongful incarceration. For more state details on state wrongful incarceration laws, see the Innocence Project (2015).
  27. Tennessee’s statute states that compensation may also be provided for physical or mental suffering.
  28. This statute became effective in 1984. It was most recently amended in 2013, when language specifically addressing claims from the late-1980s was deleted by Public Chapter 164.
  29. Annotated Mississippi Code § 11-44-1 to § 11-44-15.
    Annotated Missouri Statutes, 650.
    North Carolina General Statutes Annotated, NC Gen Stat § 148-82 to § 148-84.
  30. Code of Alabama, § 29-2-151 to § 29-2-165.
  31. Annotated Code of Virginia, VA Code Ann. § 8.01-195.10 to § 8.01-195.12.
  32. Taylor v. Terry, 2015 WL 5008782; Williams v. Davidson County Sheriff’s Office, 2013 WL 3043662 (M.D.Tenn.2013).
    For more on untimely claims, see Waller v. Eby, 2007 WL 2822108 (M.D.Tenn.2007).
  33. A February 2004 session at the National Association of Forensic Economics Winter meeting in Kona, Hawaii discussed economic damages from wrongful imprisonment, but apparently none of these presentations were ever published or made publically available. Relatedly, Needham and Shipp (2005) explore how economic loss estimates in personal injury and wrongful death cases could be adjusted for past convictions.
    Needham, Allyn and Shannon Shipp. (2005). “The Impact of Criminal Convictions on Calculations of Lost Earnings in Personal Injury and Wrongful Death: Issues for Forensic Economics and Vocational Assessment.” Journal of Forensic Economics, 18 (2-3): 187-195.
  34. Overstreet v. Shoney’s Inc., 4 S.W.3d 694, 703 (Tenn.Ct.App.1999); Southern Coach Lines Inc. v. Wilson, 31 Tenn.App. 240, 243, 214 S.W.2d 55, 56 (Tenn.Ct.App.1948).
  35. Carter v. U.S., 2014 WL 1630824 at *6 (M.D.Tenn.2014); Marshall v. Cintas Corp. Inc., 255 S.W.3d. 60, 69 (Tenn.Ct.App.2007); Thrailkill v. Patterson, 879 S.W.2d 836, 841 (Tenn.1994).
  36. Hall v. Stewart, 2007 WL 258406 at *3 (Tenn.Ct.App.2007); Spencer v. A-1 Crane Serv. Inc., 880 S.W.2d 938, 943 (Tenn.1994).
  37. Carter, 2014 WL 1630824 at *6.
  38. Ibid.
  39. Tennessee Pattern Instructions — Civil 14.54 for personal injury cases and Tennessee Pattern Instructions — Civil 14.31 for wrongful death cases. Patterson ex rel.
    Patterson v. Dunn
    , 1999 WL 398083 *6 (Tenn.Ct.App.1999); Southern Ry. Co. v. Sloan, 56 Tenn.App 380, 391, 407 S.W.2d 205, 211 (1965).
  40. Carter, 2014 WL 1630824 at *6.
  41. Coffey v. Fayette Tubular Product, 929 S.W.2d 326, 332 (Tenn.1996); Sasser v. Averitt Exp. Inc., 839 S.W.2d 422, 433 (Tenn.Ct.App.1992).
  42. Frye v. Memphis State University, 806 S.W.2d 170, 173 (Tenn.1991).
  43. Borne v. Celadon Trucking Services Inc., 2014 WL 3778743 at *24 (Tenn.Ct.App.2014); Overstreet, 4 S.W.3d at 704;

Charles L. Baum II CHARLES L. BAUM II is a professor of economics at Middle Tennessee State University, where he has taught since 1999. Baum received his Ph.D. in economics from the University of North Carolina-Chapel Hill earlier that year. From 2008 to 2014, he served as the chair of the MTSU Department of Economics and Finance. He is a member of the National Association of Forensic Economists (NAFE) and the American Academy of Economic and Financial Experts (AAEFE), and he has served as an economics expert for plaintiffs and defendants in numerous cases around the southeastern United States. Baum has published several articles in peer-reviewed economics journals on the methodologies used when calculating economic losses. In July 2015, Baum published an article in the Tennessee Bar Journal on guidance provided by Tennessee statutes on economic damages in employment termination cases. To contact Baum, e-mail him at or call at 615-556-9287.

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