2. Two potential factors that lead to high transaction costs are: (1) exchanges of thinly traded pollutants (few trades) and (2) exchanges involving small quantities of pollution. Transaction costs for thinly traded pollutants would be high because of the difficulty in finding someone with whom to trade. The following table shows the number of transactions for air pollutant emission rights within Los Angeles air basin in 1985 1991. Shown are trades from one factory to another within the same company (internal trades), trades involving brokers or other intermediaries, and trades between companies without assistance of intermediaries (external). Pollutant CO NOX PM VOC SOX Internal 3 4 6 32 3 Brokered 3 21 4 55 3 External 1 4 1 61 0 Total 7 29 11 148 6 a. How would you expect the transaction costs to differ among the three categories of trade: internal, brokered and external? b. Does the table support the hypothesis that transaction costs might be higher for thinly traded pollutants? Explain. c. What effect would you expect the size of a trade to have on transaction costs? How would you expect the size of a trade to influence whether a pollutant is more likely to be internally traded, brokered or externally traded? 2. Two potential factors that lead to high transaction costs are: (1) exchanges of thinly traded pollutants (few trades) and (2) exchanges involving small quantities of pollution. Transaction costs for thinly traded pollutants would be high because of the difficulty in finding someone with whom to trade. The following table shows the number of transactions for air pollutant emission rights within Los Angeles air basin in 1985 1991. Shown are trades from one factory to another within the same company (internal trades), trades involving brokers or other intermediaries, and trades between companies without assistance of intermediaries (external). Pollutant CO NOX PM VOC SOX Internal 3 4 6 32 3 Brokered 3 21 4 55 3 External 1 4 1 61 0 Total 7 29 11 148 6 a. How would you expect the transaction costs to differ among the three categories of trade: internal, brokered and external? b. Does the table support the hypothesis that transaction costs might be higher for thinly traded pollutants? Explain. c. What effect would you expect the size of a trade to have on transaction costs? How would you expect the size of a trade to influence whether a pollutant is more likely to be internally traded, brokered or externally traded