In a laboratory experiment, we study behaviour in a contract farming game without
third-party enforcement but with an external spot market as outside option. We examine
if and how relational contracts and personal communication support private-order
enforcement. We find mixed evidence for our private ordering hypothesis. While
relational contracting significantly reduces contract breach in general, the possibility
for ‘direct bargaining communication’ has no additional positive effect. Both parties
benefit from a well-functioning relation in the long run, yet most subjects are not
willing to sacrifice short-term gains. If reputational mechanisms are absent, premiums
are offered (but not paid).
