This Article offers an innovative approach to settling disputes about interjurisdictional externalities. Focusing attention on the negative spillover effects of local government zoning decisions on neighboring jurisdictions, the Article develops a monetary compensation regime intended to enrich the currently limited spectrum of intergovernmental legal remedies. This new liability rule scheme is intended to promote regional efficiency in land use decisions, without wholly upsetting local government powers. To achieve this aim in a way that is both normatively desirable and administratively feasible, the Article suggests that the parties to the litigation would be the respective local governments, and the remediable damages — the time-fixed loss of public revenues resulting from the expected cross-border adverse effects of the new land use. Hence, for example, a local government would be entitled to compensation for a decrease in its property tax revenues following the devaluation of properties in its territory due to the expected environmental spillovers of a newly approved land use across the border.
As this Article shows, the focus on public revenues may often serve as an effective proxy for evaluating the entire set of public and private marginal effects of the land use decision, making the proposed legal regime a reliable mechanism to promote overall social welfare without resorting to a costly full-scale litigation involving private parties. In addition, the liability rule framework reveals the potential for a monetary internalization of cross-border positive spillovers, and offers a fresh basis for addressing a wide array of intergovernmental conflicts and dilemmas beyond the land use context.