One's home (whether a house or an apartment) is typically thought of as one's castle. But not so in the condominiums with homeowners associations (HOAs) in Jefferson County, Colorado. In an older four-unit condo, the HOA voted 3-1 to adpot a no-smoking rule (inside the indivial condos) after smokers bought one of the units and smoke permeated the valls of the structure. In 2006, a district judge ruled that the HOA's adpotion of no-smoking rules was a reasonable resriction on ownership rights, stating that the rules were designed to prevent the odor of cigarettes from penetrationg the walls of neighboring condos.
Considering that there are a small number of people involved (three non-smoking units, one smoking), you would think that transaction costs would be minimal. Why do you think the homeowners could not work out an agreement (a la Coase) and ended up in court? According to the Coase theorem, would it have made any difference if the judge had ruled against the HOA?