Kenneth Ayotte and Henry E. Smith
Edward Elger Publishing
Economic analysis of nuisance law can be divided into two branches: the transaction cost model and the externality model. The two models provide a relatively complete positive theory of nuisance law. Under the externality model, 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 not reciprocal to other background external costs. Proximate cause doctrine plays an important role in inducing optimal activity levels.
Keith N. Hylton,
The Economics of Nuisance Law
Research Handbook on the Economics of Property Law
(Kenneth Ayotte and Henry E. Smith ed.,
Available at: https://scholarship.law.bu.edu/faculty_scholarship/441