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

Richman, Barak D., How Community Institutions Create Economic Advantage: Jewish Diamond Merchants in New York (Spring 2006). Law and Social Inquiry, Vol. 31, No. 2, Spring 2006; Duke Law School Legal Studies Research Paper No. 65; Harvard Law and Economics Discussion Paper No. 384. Available at SSRN: or

Barak D. Richman (Contact Author)

Duke University - School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States
919-613-7244 (Phone)
919-613-7231 (Fax)

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