Accordingly, we will consider three cases, all of which are of practical importance in some settings: when prospective injurers cannot foresee the precise harm they will cause but only average harm; when they can perfectly and costlessly
foresee the precise harm; and when they can do so but only if they incur a cost.
Of course, there would still be court costs to prosecute the fraudulent voters, but the deterrent effect of a higher fine would costlessly
reduce the number of potential fraudulent voters and reduce monitoring costs.
Diamond and Dybvig (1983) propose that government insurance can costlessly
limit the risk of bank runs by guaranteeing the values of customer deposits.
Financial arbitrage involves developing new and better algorithms that can be deployed almost costlessly
, whereas in manufacturing arbitrage typically involves expensive actions like moving plants from one location to another or implementing new production processes.
Similarly, most tax authorities in developed countries can accurately and (almost) costlessly
determine the proper interest rate for long-term subordinated loans based on readily available market information.
Sellers could costlessly
carry inventories indefinitely.
In a zero transaction cost world, the Coase Theorem shows that we could use any devices with any degree of tailoring to protect use interests, and if such devices were not optimal for those concerned--however many they are--they would transact costlessly
toward the efficient result.
In such a world, capital assets just cannot be shifted costlessly
from one activity to another, particularly in a modern economy in which many of those resources are embodied in industry-specific, firm-specific, and worker-specific capabilities.
Information asymmetry The simple models of human behaviour that often underpin economic analysis typically assume that not only are individuals rational' in all their decision making but that they 1 can acquire and analyse information costlessly
Once we are out of the world of apparent abundance, getting out of the bust is not as easy as Keynes makes it seem by just spending more and bringing the factors of production costlessly
into the process.
For example, Crocker and Snow (1986) show that when firms can costlessly
observe categorical characteristics, categorical pricing bans are not merely inefficient at the interim stage after types have been realized but are also a suboptimal way to provide ex ante insurance.
Unless a tradable and frictionless quota system is costlessly
set up to do the secondary allocation, there will be a bottom-up inefficiency that is similar to that imposed by a price ceiling or a price floor.