Hylton, Keith N. --- "The Economics of Nuisance Law" [2011] ELECD 159; in Ayotte, Kenneth; Smith, E. Henry (eds), "Research Handbook on the Economics of Property Law" (Edward Elgar Publishing, 2011)

Book Title: Research Handbook on the Economics of Property Law

Editor(s): Ayotte, Kenneth; Smith, E. Henry

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781847209795

Section: Chapter 15

Section Title: The Economics of Nuisance Law

Author(s): Hylton, Keith N.

Number of pages: 18

Extract:

15 The economics of nuisance law
Keith N. Hylton*


I. INTRODUCTION

Nuisance law has been described as an impenetrable jungle.1 Judging by the dearth of
efforts to codify it in the form of blackletter rules, this appears to have been an opinion
shared by most legal scholars.2 The lack of clearly stated rules has probably delayed
attempts to use economics to explain nuisance doctrine.
In spite of this, some efforts have been made to provide an economic theory of nui-
sance law. Most of those efforts, stemming from Coase,3 have relied on the theory of
transaction costs to explain the functional distinction between nuisance and trespass
law.4 But the core of nuisance doctrine involves balancing tests and limitations on scope
that are not easily understood on the basis of transaction cost theory. This chapter aims
to explain the core doctrines of nuisance law. Instead of transaction cost analysis, I will
rely on an approach that I will refer to as the externality model.
In contrast to the traditional legal commentary, I find nuisance law a coherent body
of rules that serves an explainable function. Nuisance law optimally regulates activity
levels. Nuisance law induces actors to choose socially optimal activity levels by imposing
liability when externalized costs are far in excess of externalized benefits or far in excess
of background external costs. Proximate cause doctrine plays an important role, in this
analysis, in generating optimal activity levels.


II. ECONOMICS OF NUISANCES

The literature on the economics of ...