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Credibility, preferences, and bilateral investment treaties

Author

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  • Seok-ju Cho
  • Yong Kim
  • Cheol-Sung Lee

Abstract

When is a commitment mechanism employed as a solution to a time-inconsistency problem? This article provides a nuanced answer to this question by studying bilateral investment treaties (BITs). We develop a game theoretic model of BIT signing in which the government of a capital-importing country and an investor from a capital-exporting country strategically interact. The model predicts that, on the one hand, when host states highly value foreign direct investment (FDI), the likelihood of BITs increases as their judicial institutions lack credibility. On the other hand, when their preferences for FDI are only modest, the likelihood of BITs increases as their judicial institutions become more credible. We employ Cox proportional hazard models to test our hypotheses, and the results largely support our theory. Our findings have broad implications for the large literature on credible commitment, which has paid insufficient attention to the interplay between preferences and credibility. Copyright Springer Science+Business Media New York 2016

Suggested Citation

  • Seok-ju Cho & Yong Kim & Cheol-Sung Lee, 2016. "Credibility, preferences, and bilateral investment treaties," The Review of International Organizations, Springer, vol. 11(1), pages 25-58, March.
    • Handle: RePEc:spr:revint:v:11:y:2016:i:1:p:25-58
    DOI: 10.1007/s11558-015-9218-8
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    More about this item

    Keywords

    Bilateral investment treaties; Foreign direct investment; Credibility; Commitment; F53; F55; F59;
    All these keywords.

    JEL classification:

    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • F59 - International Economics - - International Relations, National Security, and International Political Economy - - - Other

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