Common property resources:

The property rights are not defined in the case of common property resources. These goods thus are over- exploited and degradation begins. Forests get denuded, common grazing land gets eroded, and air and water bodies get polluted due to production and consumption activities.

Transaction costs:

One of the basic assumptions under perfect competition is the availability of complete information on the part of both the parties entering into a contract or transaction. Procurement of information, however, involves costs, which is ignored in traditional economic theory. Transaction costs such as search, measurement, inventory, and decision-making costs important. Traditional economic theory, however, assumes away these costs on the garb of perfect information. Secondly, once a contract is undertaken, its enforcement and litigation (in the event of breach of contract) should also be considered while deciding on costs of production. If these costs are not taken into account socially optimum output and consumption levels cannot be achieved.