Police-powers, regulatory takings and the efficient compensation of domestic and foreign investors
AbstractIn customary international and public law, â€œtakingsâ€ resulting from regulations designed to protect the public good are generally excluded from compensation rules; this exclusion is known as a police powers carve-out (PPCO). Increasingly, this PPCO is being challenged, particularly in international investment law. This paper analyzes the efficiency properties of a PPCO in a model with endogenous regulation, investment and entry. We design a one-parameter family of carve-out/compensation schemes that induce efficient regulation and firm level investment even when the regulator suffers fiscal illusion and the social benefit from regulation is private information to the regulator. We show that offering a carve-out reduces the subsidy to risky industry implicit in compensation rules; thus, a carve-out can mitigate the entry problem.
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Bibliographic InfoPaper provided by Department of Agricultural & Resource Economics, UC Berkeley in its series Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series with number qt5x84h5kf.
Date of creation: 27 May 2008
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regulatory takings; expropriation; environment; foreign direct investment; NAFTA;
Other versions of this item:
- Emma Aisbett & Larry Karp & Carol Mcausland, 2010. "Police Powers, Regulatory Takings and the Efficient Compensation of Domestic and Foreign Investors," The Economic Record, The Economic Society of Australia, vol. 86(274), pages 367-383, 09.
- Aisbett, Emma & Karp, Larry & McAusland, Carol, 2008. "Police-powers, regulatory takings and the efficient compensation of domestic and foreign investors," CUDARE Working Paper Series 1061, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
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