Explain institutions and transaction costs when being well-defined & functioning and when being wrong & unsuitable?
- Well-defined & functioning
- -Institutions reduce uncertainties = lower transaction costs (specifying what is being exchanged - enforcing the consequent agreements = the costs for carrying through exchanges and upholding an agreement)
- Wrong/Unsuitable institutions- Increase transaction costs. Bureaucracy, corruption, insecure property rights & incomplete information (asymmetric information)