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An optimal investor-state dispute settlement mechanism

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  • Frank Stähler

    (University of Adelaide, University of Tübingen, CESifo and NoCet)

Abstract

Many investment treaties include investor-state dispute settlement (ISDS) provisions which are supposed to protect a foreign investor against opportunistic behavior of a host country. This paper scrutinizes the optimal design of ISDS provisions that solve the holdup problem. It shows that an efficient investor protection mechanism requires an arbitrator as established in investment treaties. However, this arbitrator does neither have to learn nor to evaluate the circumstances of the dispute. Furthermore, any ISDS compensation from the government to the investor should not be based on reductions in investor profits but on the host country’s welfare effects.

Suggested Citation

  • Frank Stähler, 2023. "An optimal investor-state dispute settlement mechanism," Journal of Economics, Springer, vol. 138(1), pages 1-16, January.
    • Handle: RePEc:kap:jeczfn:v:138:y:2023:i:1:d:10.1007_s00712-022-00800-z
    DOI: 10.1007/s00712-022-00800-z
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    More about this item

    Keywords

    Investor state dispute settlement; Foreign direct investment; TTIP; TPP;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • 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
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H13 - Public Economics - - Structure and Scope of Government - - - Economics of Eminent Domain; Expropriation; Nationalization

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