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Notes -
Towns never handled conflicting land uses with common law nuisance - explicit regulation of land use inside the city walls is as old as self-governing towns. And the most problematic rural nuisance in the US (straying livestock) was regulated by explicit statutory codes which varied by state (open range vs closed range) because applying common law nuisance led to unsatisfactory results.
Common law nuisance works better than nothing as a default where there is no codified solution in place, but people replace it with governmental codified solutions (environmental regulations, zoning etc.) or privatised codified solutions (condo/co-op/HOA rules, restrictive covenants, long leases instead of freeholds) at the first opportunity.
Coase's theorem tells us that something like the common law rule allows market participants to cut deals and achieve efficient outcomes (and, in particular, may do better and will not do worse than a Pigouvian tax on the nuisance) if:
The second condition almost never holds in the context of urban land use, and both courts and legislatures can see this, so you end up either with command-and-control regulation or Pigouvian taxes. In the urban context you can model a municipally-imposed and collected Pigouvian tax as a Coaseian bargain between the polluter and the community as a whole.
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