скачать PDF
Authors : 1. Barak D. Richman,
Edgar P. and Elizabeth C. Bartlett Professor of Law and Business Administration
Duke University, Durham
An autopsy of cooperation: diamond dealers and the limits of trustbased exchange
Objective: to consider the causes and conditions which have led to the breakdown of trust between diamond dealers and the industry arbitration system, to reveal the features of limitation of reputation-based exchange.
Methods: dialectical approach to the cognition of social phenomena, enabling to analyze them in their historical development and functioning in the context of a set of objective and subjective factors, which determined the choice of the following research methods: formal-logical, comparative-legal, sociological.
Results: the paper assesses recent changes in diamond industry. It is observed that growing distrust has eroded the industry’s foundations for reputation-based exchange, and the industry now exhibits growing uncooperative behavior. The breakdown of cooperation has even eroded trust in the industry’s system of private arbitration in the New York's DDC. The paper then identifies several economic forces that have reduced the economic gains from cooperation and, reciprocally, enhanced the economic attractiveness of untrustworthy behavior: changes in diamond production has increased wholesale prices, changes in Internet retail sales have decreased retail prices, and thus intermediary diamantaires suffer from reduced profits. Additionally, the emergence of Indian diamond business has intensified competition among diamond intermediaries, thus further reducing profit opportunities. Indian entry has been fueled, in part, by the availability of state-sponsored credit, and both overexpansion and
incipient bankruptcies have resulted. The loss of trust and growing unreliability of reputation-based exchange has precipitated further industrial restructuring, with diamond firms integrating vertically to avoid the traditional supply chain from intermediaries. These changes, and the continued the attrition of trust, signal significant changes to the historic and iconic industry.
Scientific novelty: for the first time, the paper substantiates the necessity to rethink what has become the prevailing understanding of cooperation and dispute resolution in the diamond industry, and to reconceptualize the economics of the diamond chain. Consistent with transaction cost economics, the authors observed that trust-based relationships and vertical integration are substitutes for each other, and that vertical integration takes hold when trust breaks down.
Practical significance: the main provisions and conclusions of the article can be used in scientific, pedagogical and lawenforcement activities in considering the issues related to legal regulation of diamond industry.
Keywords :
Arbitration system; Autopsy; Diamond dealers; Diamond industry; Limitation of reputation-based exchange
Bibliography :
1. Bernstein L. Opting out of the legal system: Extralegal contractual relations in the diamond industry, The Journal of Legal Studies, 1992, Vol. 21, No. 1, pp. 115–157.
2. Starr R. The Editorial Notebook; The Real Treasure of 47th Street, N.Y. Times, 26 March, 1984, available at: http://www.nytimes.com/1984/03/26/opinion/the-editorial-notebook-the-real-treasure-of-47th-street.html.
3. Shor R. A Profile of Diamond People and Their History, Philadelphia, PA, International Diamond Publications, 1993.
4. Shield R. R. Diamond Stories: Enduring Change on 47th Street, Ithaca, NY, Cornell University Press, 2002.
5. Oltuski A. Precious Objects: A Story of Diamonds, Family, and a Way of Life, New York, Scribner, 2011.
6. Kanfer S. The Last Empire: De Beers, Diamonds and the World, New York, 1993.
7. Roberts J. Glitter & Greed: The Secret World of the Diamond Cartel, New York, Disinformation Books, 2003.
8. Richman B. D. Firms, courts, and reputation mechanisms: towards a positive theory of private ordering, Colum. L. Rev., 2004, Vol. 104, pp. 2328–2368.
9. Richman B. D. How Communities Create Economic Advantages: Jewish Diamond Merchants in New York, Law & Soc. Inquiry, 2006, Vol. 31, pp. 383–420.
10. Rapaport M. GIA's Bribery Scandal, The Rapaport Group, 2005, available at: http://www.diamonds.net/News/NewsItem.aspx?ArticleID=13569.
11. Rapaport M. Synthetics: The Sale of Synthetic Diamonds as Natural Is Challenging the Integrity of Our Diamond Industry – What Should We Do About It?, The Rapaport Group, 2013, available at: http://www.diamonds.net/Docs/Synthetics/Sinthetics.pdf.
12. Sherman A. Synthetic Diamonds: Opportunity or Problem?, 2014, available at: http://www.diamonds.net/Docs/Synthetics/Sinthetics.pdf.
13. Whitehouse K. Diamond Store Owner Accused of Stealing Gems from Other Dealers, N.Y. Post, 5 April, 2017, available at: http://nypost.com/2017/04/05/diamond-store-owner-accused-of-stealing-gems-from-other-dealers/.
14. Even-Zohar C. Arbitration Justice in Absentia, Diamond Intelligence Briefing, 14 April, 2008.
15. Even-Zohar C. The Collapse of Trust-Based Commerce, Diamond Intelligence Briefing, 13 August, 2017, available at: http://www.diamondintelligence.com/magazine/magazine.aspx?id=14430.
16. Even-Zohar C. Bourse Leadership, Arbitrations, and Fraudulent GIA Certificates, Diamond Intelligence Briefing, 26 February, 2008.
17. Richman B. D. The Antitrust of Reputation Mechanisms: Institutional Economics and Concerted Refusals to Deal, Virginia Law Review, 2009, Vol. 95, pp. 325–387.
18. Even-Zohar C. DDC New York: A Bourse in the Service of its President, Diamond Intelligence Briefing, 2011, available at: https://www.diamondintelligence.com/magazine/magazine.aspx?id=9862.
19. Even-Zohar C. From Mine to Mistress, Rev. edition, 2007.
20. Milgrom P. R., North D. C., Weingast B. R. The role of institutions in the revival of trade: The law merchant, private judges, and the champagne fairs, Economics & Politics, 1990, Vol. 2, No. 1, pp. 1–23.
21. Klein B., Leffler K. The Role of Market Forces in Assuring Contractual Performance, J. Pol. Econ., 1981, Vol. 89, pp. 615–641.
22. Rasmusen E. A simple model of product quality with elastic demand, Economics Letters, 1989, Vol. 29, No. 4, pp. 281–283.
23. Spar D., Burns J. Forever: DeBeers and US Antitrust Law, Harvard Business School Case, 2000, No. 9-700-082.
24. Zimnisky P. De Beers Market Share to Rebound to 40% with Canada's Gahcho Kue Diamonds, 2014, available at: http://www.paulzimnisky.com/de-beers-market-share-to-rebound-to-40-with-canada-s-gahcho-kue-diamonds.
25. Richman B. D. Ethnic Networks, Extralegal Certainty, and Globalisation: Peering Into the Diamond Industry, Contractual Certainty in International Trade: Empirical Studies and Theoretical Debates on Institutional Support for Global Economic Exchanges, ed. V. Gessner, Portland, OR, Hart., 2009.
26. Even-Zohar C. A Splintering of the Pipeline: The Economic Threat of Synthetics on the Diamond Producers, Diamond Intelligence Briefing, 2015, available at: http://www.thediamondloupe.com/depth/2015-07-20/splintering-pipelineeconomic-threatsynthetics-diamond-producers.
27. Murphy V. Romance Killer, Forbes.com., 2004, available at: http://www.forbes.com/global/2004/1129/016.html.
28. Shnidman R. Online Jewelry’s Growth Restraint: US Jewelers Adapt to Online Challenges, The Rapaport Group, 2013, available at: http://www.diamonds.net/News/NewsItem.aspx.
29. Hofmeester K. Shifting trajectories of diamond processing: from India to Europe and back, from the fifteenth century to the twentieth, Journal of Global History, 2013, Vol. 8, No. 1, pp. 25–49.
30. Munshi K. Strength in numbers: Networks as a solution to occupational traps, The Review of Economic Studies, 2011, Vol. 78, No. 3, pp. 1069–1101.
31. Khanna S. After Years, Kathiawaris Outshine Palanpuris in India Diamond Biz, DNA India, 2008, available at: http://www.dnaindia.com/india/report-after-years-kathiawaris-outshine-palanpuris-in-india-diamond-biz-1156574.
32. Shah J. Palanpuris Have Rivals for Global Diamond Throne, DNA India, 2008, available at: http://www.dnaindia.com/india/report-palanpuris-have-rivals-for-global-diamond-throne-1200102.
33. Golan E. Financing in the Diamond Industry, Idex Magazine, 2013, available at: http://edahn.com/images/Financing_in_the_Diamond_Industry-IDEX_Magazine_0ct_2013.pdf.
34. Reserve Bank of India, Master Circular-Rupee/Foreign Currency Export Credit and Customer Service To Exporters, 2013, available at: https://rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?Id=8132&Mode=0.
35. Ashreena T., Ananthalakshmi A. Fearing Defaults, Banks Rein in Credit to Jewellery Firms, Reuters, 2015, available at: http://in.reuters.com/article/india-jewellers-credit-idINKBN0KP0M020150116.
36. Kothari S. Crunch Time for the Global Diamond Industry, GemKonnect, 2015, available at: https://gemkonnect.wordpress.com/2015/07/02/crunch-time-for-the-globaldiamond-industry.
37. Greif A. Institutions and the path to the modern economy: Lessons from medieval trade, Cambridge University Press, 2006.
38. Barzel Y. Some fallacies in the interpretation of information costs, The Journal of Law and Economics, 1977, Vol. 20, No. 2, pp. 291–307.
39. Kenney R. W., Klein B. The economics of block booking, The Journal of Law and Economics, 1983, Vol. 26, No. 3, pp. 497–540.
40. Spar D. L. Markets: Continuity and change in the international diamond market, Journal of Economic Perspectives, 2006, Vol. 20, No. 3, pp. 195–208.
41. Kuryan V. De Beers Discount Deals Erode Diamond Prices, May Trigger Price War, GemKonnect, 2015, available at: https://gemkonnect.wordpress.com/2015/10/27/de-beers-discount-deals-erode-diamond-prices-may-trigger-price-war/.
42. Williamson O. E. Markets and Hierarchies, New York, Free Press, 1975.
43. Shelanski H. A., Klein P. G. Empirical research in transaction cost economics: a review and assessment, Journal of Law, Economics, & Organization, 1995, Vol. 11, pp. 335–361.
44. Macher J. T., Richman B. D. Transaction cost economics: An assessment of empirical research in the social sciences, Business and Politics, 2008, Vol. 10, No. 1, pp. 1–63.
45. Williamson O. E. Calculativeness, trust, and economic organization, The Journal of Law and Economics, 1993, Vol. 36, No. 1, part 2, pp. 453–486.
46. Granovetter M. Economic action and social structure: The problem of embeddedness, American Journal of Sociology, 1985, Vol. 91, No. 3, pp. 481–510.
47. Diamond Dealers Club New York. DDC Membership Application, Declaration, available at: http://www.nyddc.com/membership.html.
48. Richman: An Autopsy of Cooperation: Diamond Dealers and the Limits of Trust-Based Exchange, Journal of Legal Analysis, 2017, Vol. 9, No. 2, pp. 247–283.
Original publication: https://academic.oup.com/jla/article/9/2/247/4430792
Citation :
Richman B. D. An autopsy of cooperation: diamond dealers and the limits of trustbased exchange, Actual Problems of Economics and Law, 2018, vol. 12, No. 2, pp. 385–412 (in Russ.). DOI: http://dx.doi.org/10.21202/1993-047X.12.2018.2.385-412
Type of article : The scientific article
Date of receipt of the article :
15.03.2018
Date of adoption of the print :
30.05.2018
Date of online accommodation :
25.06.2018
