Tight cash-flow margins make reliance harms exceed simple owed amounts in the diamond trade

Evidence

In the context of the diamond market, these conditions seem to hold. The probability that the transactors will have occasion to deal with one another in the future, 4 , is quite high. In addition, many aspects of the industry suggest that the condition that b > c will hold. For example, a diamond dealer generally operates on a slim cash flow margin and has trouble getting access to capital. He routinely makes business decisions in reliance on receiving payment on a particular date. If he is not paid, the harm he suffers can be far greater than loss of the amount of money he is owed. Nonreceipt of payment might force him to breach a contract with another dealer, which will in turn damage his reputation. — Lisa Bernestein, Opting out of the Legal System, 191

Categorization

• SEED: An article angle: how liquidity-constrained craft industries generate their own informal enforcement because the cost of default cascades so destructively.
• XREF: connects to: Ex post consequential harm makes liquidated damages clauses hard to enforce in diamond deals. — Lisa Bernestein, Opting out of the Legal System, 160; Extreme default rates express both scarce trust and high trust value; Diamond trade discipline runs on reputation fear, not arbitration or courts. (+2 more)

Related

• Diamond dealers’ reliance on timely payment makes nonpayment harm exceed its face value. (similarity 0.90)
• Diamond trade discipline runs on reputation fear, not arbitration or courts. (similarity 0.88)
• Ex post consequential harm makes liquidated damages clauses hard to enforce in diamond deals. (similarity 0.84)
• The diamond trade’s production cycle structurally requires credit. (similarity 0.80)
• Transaction costs do not explain the diamond trade’s extralegal contracts. (similarity 0.80)
• Paying judgments signals reliability even more strongly than avoiding disputes. (similarity 0.78)

Broader Connections

• Extreme default rates express both scarce trust and high trust value #corroborates (0.75)