Trust matters everywhere, but cheap reputation bonds enable fully private law

Evidence

What is unique about the diamond industry is not the importance of trust and reputation in commercial transactions, but rather the extent to which the industry is able to use reputation/social bonds at a cost low enough to create a system of private law enabling most transactions to be consummated and most contracts enforced completely outside the legal system. — Lisa Bernestein, Opting out of the Legal System, 167

Categorization

• DEFINE: Defines ‘private law system’ as the product of reputation/social bonds priced low enough to substitute for formal enforcement — a useful conceptual frame.
• ADDENDUM: The third-party enforcement failure the reader is tracking (Bellodi’s problem) becomes a mirror image here: in diamonds, reputation bonds are a substitute for the state; in the piazza they are a substitute that works against the state.
• XREF: connects to: Private self-regulators can beat external regulators on knowledge and trust. — Shapiro, Susan P., The Social Control of Impersonal Trust, 118; Private legal systems can rival state law when reputation functions as enforcement. — Lisa Bernestein, Opting out of the Legal System, 16; Handshake contracts shift enforcement costs onto reputation bonds. — Lisa Bernestein, Opting out of the Legal System, 126 (+5 more)

Related

• Private legal systems can rival state law when reputation functions as enforcement. (similarity 0.88)
• Cheap legal contracts still depend on extralegal reputation bonds (similarity 0.86)
• A private ordering system can enforce contracts entirely outside state law. (similarity 0.85)
• A reputation bond equals forgone future profits from breach (similarity 0.83)
• The diamond trade sustains an extralegal contractual regime through private arbitration and reputational enforcement. (similarity 0.82)
• Reputation can substitute for legal enforceability in evaluating contracts. (similarity 0.82)
• Reputation and institutions are complementary, not substitute, enforcement mechanisms. (similarity 0.82)
• Handshake contracts shift enforcement costs onto reputation bonds. (similarity 0.81)
• Diamond industry’s private law succeeds by enforcing judgments faster than courts. (similarity 0.80)
• Reputation, not third-party enforcement, governs diamond market transactions. (similarity 0.80)
• Diamond trade discipline runs on reputation fear, not arbitration or courts. (similarity 0.79)
• Tammany contracts were favors binding loyalty, not formal agreements (similarity 0.79)
• Pre-state trading communities sustained honesty through reputation systems backed by private judges. (similarity 0.78)

Broader Connections

• A reputation bond equals forgone future profits from breach #expands (0.92) — Lisa Bernestein, Opting out of the Legal System, 168
• Pre-state trading communities sustained honesty through reputation systems backed by private judges. #exemplifies (0.90) — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 1
• Institutional and legal constraints give people strong external incentives to be trustworthy #expands (0.85)