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When the Claim Hits: Bilateral Investment Treaties and Bounded Rational Learning

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  • Lauge N. Skovgaard Poulsen

    (London School of Economics and Political Science)

  • Emma Aisbett

    (The Australian National University (ANU) - Crawford School of Public Policy; The Australian National University (ANU) - School of Economics)

Abstract

Using the international investment regime as its point of departure, the paper introduces notions of bounded rationality to the study of economic diplomacy. Through a multi-method approach, it shows that developing countries often ignored the risks of bilateral investment treaties (BITs) until they themselves became subject to an investment treaty claim. Thus the behavior of developing country governments with regard to the international investment regime is consistent with that observed for individuals in experiments and field studies: they tend to ignore high-impact, low-probability risks if they cannot bring specific 'vivid' instances to mind.

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File URL: http://www.crawford.anu.edu.au/pdf/crwf_ssrn/crwfrp_1105.pdf
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Bibliographic Info

Paper provided by Crawford School of Public Policy, The Australian National University in its series Crawford School Research Papers with number 1105.

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Length: 50 pages
Date of creation: Jun 2011
Date of revision:
Handle: RePEc:een:crwfrp:1105

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Web page: https://crawford.anu.edu.au/research/crwf_ssrn/
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Keywords: bounded rationality; international political economy; international economic law; bilateral investment treaties;

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References

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  1. David Lake, 2009. "Open economy politics: A critical review," The Review of International Organizations, Springer, vol. 4(3), pages 219-244, September.
  2. McClelland, Gary H & Schulze, William D & Coursey, Don L, 1993. " Insurance for Low-Probability Hazards: A Bimodal Response to Unlikely Events," Journal of Risk and Uncertainty, Springer, vol. 7(1), pages 95-116, August.
  3. Srividya Jandhyala & Witold J. Henisz & Edward D. Mansfield, 2011. "Three Waves of BITs: The Global Diffusion of Foreign Investment Policy," Journal of Conflict Resolution, Peace Science Society (International), vol. 55(6), pages 1047-1073, December.
  4. Bergstrand, Jeffrey H. & Egger, Peter, 2013. "What determines BITs?," Journal of International Economics, Elsevier, vol. 90(1), pages 107-122.
  5. Arellano, Manuel & Honore, Bo, 2001. "Panel data models: some recent developments," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 53, pages 3229-3296 Elsevier.
  6. Beck, T.H.L. & Clarke, G. & Groff, A. & Keefer , P. & Walsh, P., 2001. "New tools in comparative political economy: The database of political institutions," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125517, Tilburg University.
  7. van Harten, Gus, 2007. "Investment Treaty Arbitration and Public Law," OUP Catalogue, Oxford University Press, number 9780199217892, September.
  8. Levy, Jack S., 1994. "Learning and foreign policy: sweeping a conceptual minefield," International Organization, Cambridge University Press, vol. 48(02), pages 279-312, March.
  9. Aisbett, Emma, 2007. "Bilateral investment treaties and foreign direct investment : correlation versus causation," CUDARE Working Paper Series 1032R, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
  10. Simmons, Beth A. & Dobbin, Frank & Garrett, Geoffrey, 2006. "Introduction: The International Diffusion of Liberalism," International Organization, Cambridge University Press, vol. 60(04), pages 781-810, October.
  11. Busch, Marc L. & Reinhardt, Eric & Shaffer, Gregory, 2009. "Does legal capacity matter? A survey of WTO Members," World Trade Review, Cambridge University Press, vol. 8(04), pages 559-577, October.
  12. John Conlisk, 1996. "Why Bounded Rationality?," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 669-700, June.
  13. Jerry A. Hausman & Bronwyn H. Hall & Zvi Griliches, 1984. "Econometric Models for Count Data with an Application to the Patents-R&D Relationship," NBER Technical Working Papers 0017, National Bureau of Economic Research, Inc.
  14. Colin F. Camerer & Howard Kunreuther, 1989. "Decision processes for low probability events: Policy implications," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 8(4), pages 565-592.
  15. Bubb, Ryan J. & Rose-Ackerman, Susan, 2007. "BITs and bargains: Strategic aspects of bilateral and multilateral regulation of foreign investment," International Review of Law and Economics, Elsevier, vol. 27(3), pages 291-311, September.
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Cited by:
  1. Eric Neumayer & Peter Nunnenkamp & Martin Roy, 2014. "Are Stricter Investment Rules Contagious? Host Country Competition for Foreign Direct Investment through International Agreements," Kiel Working Papers 1910, Kiel Institute for the World Economy.

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