Societies provide institutions that are costly to use, but can enforce long-run relationships. We study whether it is optimal to use self-governance or governance through these institutions. Third-party enforcement is modelled as a costly technology that consumes resources, but permits the punishment of agents who deviate from ex ante specified allocations. We show that it is optimal to employ the enforcement technology whenever commitment problems prevent first-best risk-sharing, but never optimal to provide incentives exclusively via this technology. Commitment problems then persist and the optimal incentive-structure changes dynamically over time. The use of third-party enforcement is monotonically increasing in the agents' wealth-inequality.