How Community Institutions Create Economic Advantage: Jewish Diamond Merchants in New York
39 Pages Posted: 17 Jun 2005 Last revised: 3 Aug 2012
Date Written: Spring 2006
This article argues that Jewish merchants have historically dominated the diamond industry because of their ability to reliably implement diamond credit sales. Success in the industry requires enforcing executory agreements that are beyond the reach of public courts, and Jewish diamond merchants enforce such contracts with a reputation mechanism supported by a distinctive set of industry, family, and community institutions. An industry arbitration system publicizes promises that are not kept. Intergenerational legacies induce merchants to deal honestly through their very last transaction, so that their children may inherit valuable livelihoods. And ultra-Orthodox Jews, for whom participation in their communities is paramount, provide important value-added services to the industry without posing the threat of theft and flight.
Keywords: Dispute Resolution, Private Ordering, Religion & Economics, Reputation Mechanisms
JEL Classification: K12, L14, L22
Suggested Citation: Suggested Citation