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When the claim hits: bilateral investment treaties and bounded rational learning

  • Lauge N. Skovgaard Poulsen
  • Emma Aisbett

Using the international investment regime as its point of departure, the paper applies 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 consistently 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://eprints.lse.ac.uk/45035/
File Function: Open access version.
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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 45035.

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Date of creation: Apr 2013
Date of revision:
Publication status: Published in World Politics, April, 2013, 65(2), pp. 273-313. ISSN: 0043-8871
Handle: RePEc:ehl:lserod:45035
Contact details of provider: Postal: LSE Library Portugal Street London, WC2A 2HD, U.K.
Phone: +44 (020) 7405 7686
Web page: http://www.lse.ac.uk/

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  1. 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.
  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. 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.
  4. Mark Tuil & Louis Visscher, 2010. "Introduction," Chapters, in: New Trends in Financing Civil Litigation in Europe, chapter 1 Edward Elgar.
  5. John Conlisk, 1996. "Why Bounded Rationality?," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 669-700, June.
  6. van Harten, Gus, 2007. "Investment Treaty Arbitration and Public Law," OUP Catalogue, Oxford University Press, number 9780199217892, March.
  7. 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.
  8. Bergstrand, Jeffrey H. & Egger, Peter, 2013. "What determines BITs?," Journal of International Economics, Elsevier, vol. 90(1), pages 107-122.
  9. 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.
  10. Aisbett, Emma, 2007. "Bilateral Investment Treaties and Foreign Direct Investment: Correlation versus Causation," MPRA Paper 2255, University Library of Munich, Germany.
  11. 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.
  12. 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.
  13. 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.
  14. Levy, Jack S., 1994. "Learning and foreign policy: sweeping a conceptual minefield," International Organization, Cambridge University Press, vol. 48(02), pages 279-312, March.
  15. David Lake, 2009. "Open economy politics: A critical review," The Review of International Organizations, Springer, vol. 4(3), pages 219-244, September.
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