Transaction Cost, PPR and Government Regulation

 

Definition of TC      PPR : three sets of rules   Common property - non exclusivity   Rent dissipation

The flow of occurrence of Rent Dissipation

To Cheung, rent dissipation will be minimized by the emergence of another contractual arrangement which is set by the parties involved

Full price = monetary price + non - monetary price : no shortage or surplus

All price control / quotas should be removed for achieving efficiency

Rent dissipation : inefficiency ; if TC for avoiding rent dissipation is prohibitive ( e.g. cost of defining PPR is too high ), rent dissipation is unavoidable and the situation should be considered as efficient

Tax / subsidy :

- demand elasticity > supply elasticity : smaller tax burden / smaller subsidy benefit on the consumer