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.SOC.REV.55 (1963).294See Coase, supra note [].C:\inetpub wwwroot\results\4381-text.native.1091721321.doc; 8/5/2004 11:50 AM\Hosted by The Berkeley Electronic Press ExpressO Preprint SeriesThe End of Notice Page 60 of 74individuals addressed the problem of social cost, Ellickson found that neithertraditional doctrine nor received economic wisdom would predict behavioraccurately.Ellickson studied the ranchers and farmers of Shasta CountyCalifornia in the early 1980s.295 As the title of the book suggests, Ellickson foundthat members of this fairly close-knit community often declined to resort toformal legal action when boundary disputes arose amongst members of thecommunity.But that is not to say that formal law had no role in resolving disputes inShasta County.Ellickson observes that when the cattle wandered off the fields,and onto the highway, California tort law and not the communal norms ofcooperation would likely resolve any dispute that arose between the owner ofthe cow and the driver of the car that might have occupied the same point in spaceand time.296 While the ranchers may not have fully understood the nature of theirliability they believed, despite repeated losses, that the motorist buys the cowin open range 297 the rest of world did.And this liability was determined notthe norms of the Shasta county community, but by California law on negligence,animals and insurance.Based on this, among other things, Ellickson developed an intuitivelyappealing hypothesis: members of a close-knit group develop and maintainnorms whose content serves to maximize the aggregate welfare that membersobtain in their workaday affairs with one another. 298 In simpler terms, Ellicksonobserved, this meant that members of tight social groups will informallyencourage each other to engage in cooperative behavior. 299 But, the corollarywould have to be that informality or norms-governed rule-making would beinappropriate when these conditions principally the social cohesion condition did not obtain.Among other things, he recognized that normatively influencedsystems of control might tend to externalize costs to those outside the community. [N]orms that add to the welfare of the members of a certain group commonlyimpoverish, to a greater extent, outsiders to that group, he observed, citing,among other things, the treatment of African Americans in the presence of normsof racial discrimination.300Ellickson did not discuss the financing of cattle in Shasta county, so it is notclear whether a more insular, norms-based system applied to the resolution ofdebtor-creditor disputes, or the more formal legal rules were assumed to apply.The suggestion seems to be that within the community, the norms-based regimen295Ellickson, Order, supra note [].296Id.at 82.297Id.103298Id.at 167 (emphasis in original).299Id.Ellickson recognized that this position resonated with works of writers as divers asAlexander Bickel, Lon Fuller, Frederick Hayek, Thomas Schelling, and similar scholars who indiverse ways have kept alive Burkean notion that decentralized social forces contributeimportantly to social order. Id.(citations omitted).300Id.at 169.C:\inetpub wwwroot\results\4381-text.native.1091721321.doc; 8/5/2004 11:50 AM\http://law.bepress.com/expresso/eps/314 ExpressO Preprint SeriesThe End of Notice Page 61 of 74would apply.Thus, he observed When a notorious informal debt has beenrepaid, the party who has been made whole bears an informal duty to tell othersthat accounts have been squared. 301 But outside the community, the suggestionseems to be that more traditional, baseline rules of law do and should apply.Theinformal methods of rule generation and enforcement within the community donot necessarily obtain outside the community.302 It would be difficult, forexample, to imagine that agricultural lenders would rely solely on reputation,gossip, and informal social control to enforce their loans, or to make a decision toextend credit.Within the group, informal measures may be adequate proxies forobtaining information about a debtor s property.It is hard to see that the samewould be the case outside the group.Lisa Bernstein s study of diamond merchants yields a similar suggestion.Bernstein sought to understand why diamond merchants, especially those in theNew York Diamond Dealers Club, rarely resorted to established legalmechanisms to create contracts or to resolve disputes over them.303 UnlikeEllickson, Bernstein does discuss the role that credit and financing play in thediamond trade.304 Credit was an important component of sales among diamondmerchants, where bargaining over the term of payment became an important andcontentious stage in contract negotiations. 305 According to Bernstein, paymentterms (other than cash on delivery) were often 30- or 60- days.These periodsoften corresponded to the time involved in finishing the stone, so Bernsteinsurmised that sellers generally finance most, if not all, of the buyer s(manufacturer s)) cash gap. 306Bernstein discusses the mechanics of external financing only indirectly.Sheobserves that a fairly small number of banks were involved in the diamondindustry, because valuing diamonds was often beyond the expertise of mostbankers.307 While diamonds may be valuable property, it would appear that thevalue of this property plays only an incidental role when banks decide to extendcredit to insiders in the diamond industry.Rather than collateral value, per se,lenders in Bernstein s study were more concerned with merchant reputation.308301Id.at 232.302Id.at 283 ( As prior investigators have found in other contexts, disputants are increasinglylikely to turn to legal rules when the social distance between them increases. ).303Bernstein, Diamond Industry, supra note [], at 116 ( the diamond industry is unique in itsability to create and, more important, to enforce its own system of private law. )304She characterizes diamond markets as both a commodities market and an implicit capitalmarket. Id.at 131305Id.at 131306Id.at 131.307Id.at 154, n.67
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