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When do transaction costs arise? Select all answers that apply. a. When behavior is not observable...

When do transaction costs arise? Select all answers that apply.

a. When behavior is not observable

b. When people are free riding

c. When firms make large profits

d. When property rights are not well defined

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Answer #1

Transaction costs can be defined as the negative externality that arises from an action.

These are generally arise when property rights are not well defined.

Secondly, if there is lack of clear information with respect to market then in that case behavior of parties concerned cannot be observed in clear manner. This also results in transaction costs.

Also, free rider problem can also give rise to transaction costs.

Hence, the correct answer is the option (a), (b), and (d).

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