The customs and institutions in the diamond industry emerged for reasons wholly unrelated to shortcomings in the legal system; yet, even as the force of the old enforcement mechanisms of religion and secondary social bonds began to disintegrate, a network of trading clubs, designed to promote the dissemination of information about reputation and socialization among members, emerged to fill the gap. That generations of diamond dealers have clung to nearly identical intraindustry norms in countries with a wide variety of legal rules and institutions suggests that the traditional rules and institutions are likely to be efficient from the perspective of market insiders. In the United States, the traditional rules and institutions endured over time and demonstrated their superiority to the established legal regime.

DEFINE: Explains how informal reputation-based trading clubs emerged to replace disintegrating religion and social-bond enforcement mechanisms in the diamond industry.

Lisa Bernestein, Opting out of the Legal Sys…, loc. 284