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Journal of Law, Economics, and Organization Advance Access originally published online on April 16, 2008
Journal of Law, Economics, and Organization 2009 25(2):286-310; doi:10.1093/jleo/ewn007
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Right arrow D23 - Organizational Behavior; Transaction Costs; Property Rights
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© The Author 2008. Published by Oxford University Press on behalf of Yale University. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org

Coming to the Nuisance: Revisiting Spur in a Model of Location Choice

Robert Innes*

University of Arizona

* Departments of Economics and Agricultural and Resource Economics, University of Arizona, Tucson, AZ 85721, USA. Email: innes{at}ag.arizona.edu.

Building on recent work of Pitchford and Snyder (PS, 2003), this article models effects of alternative property rights regimes on sequential location decisions of two players. A new resident decides whether to "come to the nuisance" by locating next to an existing business or to locate elsewhere where there are no negative externalities between occupants. Faced with a new resident, the existing business can relocate. Once situated, local residents bargain to address negative externalities. However, location decisions are non-contractible. In this setting—contrary to PS—the first best is achieved by allocating property rights to the first party, entitling the initial resident to full compensation for damages. This rule is consistent with the Spur Industries decision. Allocating property rights to second parties excessively encourages residents to "come to the nuisance," whereas stronger first-party rights (injunctive or exclusion) excessively deter nuisances from moving to areas less prone to external harm. (JEL K11, K32, D62, D23)


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