Transaction costs do not explain the diamond trade’s extralegal contracts.

Evidence

The diamond industry’s preference for an extralegal contractual regime cannot be explained by the transactions costs incurred in preserving an agreement in an integrated writing. Although the industry is organized to minimize the costs of using extralegal agreements, given the widespread use of weight slips, invoices, and bills of sale, the additional transaction costs of using legally enforceable standard-form contracts would not be significant. These agreements could be drafted to approach a complete contingent-state contract because most of the events that might disrupt a transaction are well known within the industry and are subject to wellestablished customs and usages within the trade. — Lisa Bernestein, Opting out of the Legal System, 137

Categorization

• XREF: Directly echoes the law-and-economics debate about why close-knit industries opt out of legal enforcement, connecting to Bernstein’s own prior work on cotton and grain industries. — connects to: Diamond trade discipline runs on reputation fear, not arbitration or courts.; Ex post consequential harm makes liquidated damages clauses hard to enforce in diamond deals. — Lisa Bernestein, Opting out of the Legal System, 160; Private bourse dispute-resolution and secrecy keep the diamond trade extralegal and low-breach. (+1 more)

Related

• Transaction costs alone cannot explain the diamond industry’s rejection of legal contracts (similarity 0.94)
• The diamond trade sustains an extralegal contractual regime through private arbitration and reputational enforcement. (similarity 0.84)
• Ex post consequential harm makes liquidated damages clauses hard to enforce in diamond deals. (similarity 0.83)
• Diamond trade discipline runs on reputation fear, not arbitration or courts. (similarity 0.83)
• Diamond industry’s private law succeeds by enforcing judgments faster than courts. (similarity 0.82)
• Extralegal contracting costs fall when such contracts dominate a market. (similarity 0.82)
• Reputation, not third-party enforcement, governs diamond market transactions. (similarity 0.81)
• Cheap legal contracts still depend on extralegal reputation bonds (similarity 0.81)
• Pre-arbitration conciliation resolves most diamond-industry disputes. (similarity 0.81)
• Tight cash-flow margins make reliance harms exceed simple owed amounts in the diamond trade (similarity 0.80)
• The diamond industry has rejected state law in favor of private governance. (similarity 0.80)

Broader Connections

• Diamond trade discipline runs on reputation fear, not arbitration or courts. #expands (0.85)
• Private bourse dispute-resolution and secrecy keep the diamond trade extralegal and low-breach. #expands (0.82)
• Ex post consequential harm makes liquidated damages clauses hard to enforce in diamond deals. #complicates (0.80) — Lisa Bernestein, Opting out of the Legal System, 160