Brexit and the Euro trade

Brexit Meets Gravity: By Krugman

Let us construct the transaction cost equal zero solution.

I drop goods on the chunnel train, and, with 97% probability my cargo transmits, and pays,  the correct tariff, via a near field wireless interface upon entering chunnel.  In fact, set transportation differentials to zero.

What is my leakage?
Scofflaws, violators who cheat on cargo, that is the problem with gravity, the scofflaws always find the next best path to down hill.  

If not for scofflaw, Coase, rules, both sides have zero transaction costs, they apply their pricing formula. England has way more than enough diversity to realize the Coase outcome, we get a balance.

Scofflaws are mostly caught eventually, but we have an insurance fee.  This is Krugman's point, and it can be encapsulated into the insurance fee, a real price, but measurable and assignable.  The solution is for both parties to lower their tariffs, lowering the liability from scofflaws.

See the aliasing effect? The scofflaws are known, and thus oversampled, we pay for more cops per crook than clerks per trader.  Depending on technology, we get a trade space where the insurane company  is an equal, but minor partner.  They help whiten the  fixed bandwidth system. The three color system, seems to appear a lot.