In a laboratory experiment, we create relationships between pairs of anonymous subjects through a Prisoners' dilemma game. Thereafter the same subjects play a private values bargaining game with or without communication. Communication substantially increases bargaining efficiency among subjects...

We present experimental evidence that promises and threats mitigate the hold-up problem. While investors rely as much on their own threats as on their trading partner's promises, the latter are more credible. Building on recent work in psychology and behavioural economics, we then present a...