Stateless Commerce: The Diamond Network and the Persistence of Relational Exchange

At any point in the supply chain, an individual with physical possession can take the diamonds and run. [...]any conventional firm in this industry faces extremely high employee-monitoring costs, given that an individual employee possesses untraceable merchandise worth $30 million a pound. Courts of law normally play an enforcement role that lowers transaction costs, but Richman argues that this is not an option in diamond commerce: "Modern courts and state-sponsored law enforcement, which we rely on to secure contract and property rights, can do virtually nothing to secure a diamond executory contract" (p. 38). [...]if a merchant community can create what could be called "impersonal personal exchange" then it might be adequately efficient to sustain itself into the era of modern courts. The diamond market is an example of a common historic development: a community, often religious, that creates cooperative networks and self-enforcement mechanisms that lower transaction costs and thus create a comparative advantage in some commercial activity.