How Communities Create Economic Advantage: Jewish Diamond Merchants in New York

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The most up-to-date version of this piece can be found in the Duke Law Scholarship


This paper argues that Jewish merchants have dominated the diamond industry because of their ability to enforce diamond credit sales. Diamonds are portable, easily concealable, and extremely valuable, thereby rendering courts powerless in policing diamond theft and credibly enforcing diamond credit sales. Since credit sales are highly preferable to simultaneous exchange, success in the industry requires an ability to enforce executory agreements that are beyond the reach of public courts. Relying on a reputation mechanism that is supported by a distinctive set of industry, family, and community institutions, Jewish diamond merchants have been able to enforce such contracts and have thus maintained industry leadership for several centuries. An industry arbitration system publicizes instances where promises 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.

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