Resolving Nuisance Disputes: The Simple Economics of Injunctive and Damage Remedies

Abstract

In nuisance-type cases, legal commentators generally recommend -- and the courts seem to increasingly use -- the award of damages rather than the granting of an injunction of the harmed party. This essay compares the economic consequences of injunctive and damage remedies under a variety of circumstances. The discussion focuses on the ability of the remedies to deal with the strategic behavior of the litigants, the cost of redistributing income among the litigants (or classes of litigants), and the im-perfect information of the courts. In ideal circumstances -- cooperative behavior, costless redistribution, and perfect information -- injunctive and damage remedies are equivalent. The presence of strategic behavior alone does not change this conclusion. However, if it is also costly to redistribute income, the remedies are no longer equivalent. When there are a small number of litigants in these circumstances, neither remedy is generally more effective. When there are a large number of litigants, the damage remedy is superior. Finally, and most realistically, if the courts also have imperfect information, neither remedy dominates the other. Thus, the general presumption in favor of damage remedies is not supported.