00:01
So let me give you the right answer and then explain it.
00:02
The idea is that if transactions costs are high, right? that's the first one.
00:19
The kos theorem says that the market will not allocate resources efficiently.
00:35
That's the whole idea of the cos theorem, right? so i would say that the correct answer here is b, right? if the transaction costs of negotiating are high, the cos theorem will suggest that the private market will not efficiently allocate resources, right? but why? the cosi and insight is that that local problems can be solved by negotiation, right, or at least more easily solved by negotiation, right? if you don't like the way your neighbor mows their lawn, you can have a discussion with them about it, you can talk to them, you can maybe work something out.
01:31
But if you don't like how 18 million corporations are putting carbon dioxide into the atmosphere, it's very difficult for you to sit down with 18 million corporations and work out a new climate change strategy, right? the whole idea is that externalities can be resolved if penalties can be dealt with, and promise i can spell, can be dealt with through negotiation.
02:07
And that only happens when the problems are local and easily open to discussions with all the relevant partners.
02:18
So small problems can be easily solved because people can negotiate amongst themselves and figure things out.
02:24
Large or complicated problems where it's very difficult to negotiate, where it's very expensive to get everyone at the bargaining table, the negotiations that figure out the right outcome simply can't happen and these problems stick and blast...
