The implication of the Coase Theorem is that involved parties will deal with externalities if the stakes are high enough or the transaction costs are low enough.
In the case of the freedom convoy blockades in Canada, one would hope that the governments of both countries had done the following sort of calculation. I tend to doubt it.
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Annual trade between the U.S. and Canada is roughly $600B/yr. in our dollars. That's a revenue figure, not a profit figure.
About a quarter of that goes over the Ambassador Bridge, so that's $150B/yr.
That bridge was blocked for about a week, so that's $3B.
Profit rates for firms are in the range of about 10% or revenue. So that's about $300M.
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Here's the thing, These are all flows.
The distinction about why flows are important is underutilized in macroeconomics, and is more or less ignored by governments.
When you interrupt flows, you don't get that back. A flow may recover to what it was before, but in order to recover the interrupted part of the flow, it has to flow faster for a while. That usually does not happen.
If you're not sure about this, think about getting ill. The work time and effort you lose is not usually made back. Instead, you push many things back, and skip others. Economies work the same way.
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The Coase Theorem implies that the two governments had a cushion of about $300M to negotiate with to get the bridge open.
I have a hard time seeing that they took advantage of this.
That's an opportunity cost that's a net loss for both countries. There has been some attention paid in Canada to the enforcement costs. Estimates are in the low tens of millions.
Ballparking this way exposes the stupidity of the response taken by the Canadian government.
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N.B. I'm not saying I'd respond any differently if I was in their position. Nor do I know if negotiation would have worked. I am saying that a good macroeconomist should be able to point this out.
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