In a given market, geographical concentration, ethnic homogeneity, and repeat dealing may be necessary preconditions to the emergence of a contractual regime based on reputation bonds. As the diamond industry illustrates, however, these conditions are not required for the maintenance of such a system, particularly when the system has already demonstrated itself to be preferable (Pareto preferred) to the established legal regime.

XREF: Connects to network effects and institutional path dependence — once a reputation system reaches critical mass and proves superior, it becomes sticky.

Lisa Bernestein, Opting out of the Legal Sys…, loc. 179