I've looked through the docs and searched on-line, but can't find an answer to something I think should be pretty frequently encountered.
How do you increase happiness? Giving them food and money doesn't seem to help. Giving equipment doesn't seem to help. Doing their quests doesn't seem to help. Do you just have to kill them so they don't off the quest givers?
I think overall wealth is linked somehow to happiness, so just getting someone out of debt won't necessarily make them happy -- they need to have a more comfortable amount of money (and even that doesn't seem to be a guarantee). I'm also fairly sure that the more dangerous quests you have piled up unsolved, the more likely people are to squabble. (If you donate enough money to a townsperson in one go, they'll usually gain a temporary status effect that will stop them from picking fights for a specific amount of time -- 10 minutes, IIRC -- so you can use that to your advantage. How much you have to donate seems to vary, though.)
As far as I know, giving someone food is mainly good for restoring their health & removing the "starving" condition. Any happiness bonus it gives is probably minor, and since I'm pretty sure they can't keep any "extra" food you give them for the next time they would be starving, it's kind of pointless to give them food at all unless they're in danger of dying from low hit points, or you're almost broke. If they're starving, just give them money (ideally, enough so they won't be starving again in five minutes ;) ).
The townspeople's starving and (in)fighting mechanics are easily my least-favorite additions in the expansion.