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Compensation for Indirect Expropriation in International Investment Agreements: Implications of National Treatment and Rights to Invest

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  • Aisbett Emma
  • Karp Larry
  • McAusland Carol

Abstract

International investment agreements allow investors to bring compensation claims when their investments are hurt by new regulations. This requirement that host governments compensate for indirect expropriation helps solve post-investment moral hazard problems such as hold-ups, thereby helping to prevent inefficient over-regulation and encouraging foreign investment. However, when the social or environmental harm of a project is uncertain pre-investment, compensation requirements can interact with National Treatment clauses in a manner that reduces host government welfare and makes them less likely to admit investment. A police powers carve-out from the definition of compensable expropriation can be Pareto-improving and increase foreign investment.

Suggested Citation

  • Aisbett Emma & Karp Larry & McAusland Carol, 2010. "Compensation for Indirect Expropriation in International Investment Agreements: Implications of National Treatment and Rights to Invest," Journal of Globalization and Development, De Gruyter, vol. 1(2), pages 1-35, December.
    • Handle: RePEc:bpj:globdv:v:1:y:2010:i:2:n:6
    DOI: 10.2202/1948-1837.1133
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    Cited by:

    1. Guttorm Schjelderup & Frank Stähler, 2021. "Investor‐state dispute settlement and multinational firm behavior," Review of International Economics, Wiley Blackwell, vol. 29(4), pages 1013-1024, September.
    2. Aisbett, Emma & Busse, Matthias & Nunnenkamp, Peter, 2016. "Bilateral investment treaties do work: Until they don't," Kiel Working Papers 2021, Kiel Institute for the World Economy (IfW Kiel).
    3. Horn, Henrik & Tangerås, Thomas, 2021. "Economics of international investment agreements," Journal of International Economics, Elsevier, vol. 131(C).
    4. Emma Aisbett & Matthias Busse & Peter Nunnenkamp, 2018. "Bilateral investment treaties as deterrents of host-country discretion: the impact of investor-state disputes on foreign direct investment in developing countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 154(1), pages 119-155, February.
    5. Horn, Henrik & Tangerås, Thomas, 2016. "Economics and Politics of International Investment Agreements," Working Paper Series 1140, Research Institute of Industrial Economics.
    6. Kohler, Wilhelm & Stähler, Frank, 2019. "The economics of investor protection: ISDS versus national treatment," Journal of International Economics, Elsevier, vol. 121(C).
    7. Konrad, Kai A., 2017. "Large investors, regulatory taking and investor-state dispute settlement," European Economic Review, Elsevier, vol. 98(C), pages 341-353.
    8. Horn, Henrik, 2022. "Investment Treaty Reform when Regulatory Chill Causes Global Warming," Working Paper Series 1450, Research Institute of Industrial Economics, revised 23 Apr 2024.
    9. Silvia MATÚŠOVà & Peter NOVà ČEK, 2022. "New generation of investment agreements in the regime of the European Union to international contracts," Juridical Tribune - Review of Comparative and International Law, Bucharest Academy of Economic Studies, vol. 12(1), pages 21-34, March.
    10. Li, Chen, 2016. "Signing a Bilateral Investment Treaty - A tradeoff between investment protection and regulation," VfS Annual Conference 2016 (Augsburg): Demographic Change 145505, Verein für Socialpolitik / German Economic Association.

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    More about this item

    Keywords

    foreign direct investment; regulatory takings; expropriation; international investment agreements; National Treatment; environment;
    All these keywords.

    JEL classification:

    • K3 - Law and Economics - - Other Substantive Areas of Law
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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