Short term costs are increasing over time

Due to the development of the market, the short term costs are increasing over time. For example, the recent US tax reform in the long term will benefit the companies as the corporate tax is cut from 35 per cent to 21 per cent; however, in the short term, firms need to spend more on restructuring their tax efficiency systems to coup with the new US tax system in order to make the most of the tax cut, so from this point of view, the short term costs increase due to the new tax reform.

The development of market is a process of completing the market (to make the market complete). A complete market means that the market has negligible transaction costs and perfect information and there is a price for every asset in every possible state of the world. Once the market is relatively close, it means all sectors attach with each other. The US tax reform is an exogenous change and the entire market has to adopt the change systematically. Such systematic change is costly as some work has to be redone, people may need more training to adopt the changes.

Therefore, to conclude, in a more complete and more developed market, a minor change requires a systematic change within the market, which could be very costly in the short term.