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Investment Treaties and the Replacement of Stranded Investment

Author

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  • Horn, Henrik

    (Research Institute of Industrial Economics (IFN))

  • Sanctuary, Mark

    (IVL Swedish Environmental Research Institute, Stockholm)

Abstract

A common claim holds that investment treaties reduce the willingness of host countries to regulate foreign-owned, environmentally-stranded, investments. A counter-argument is that the treaties can yield incentives for environmentally-friendly replacement investment. This paper examines these claims in a stylized setting with a stranded investment and a potential replacement investment, both of which are protected by an investment agreement. The paper shows how treaty protection weakens incentives for environmental protection. The paper also shows how the extent of environmental damage depends on the implementation of core legal notions, such as investor legitimate expectations, the full compensation requirement, carve-outs from compensation obligations, and what qualifies as an investment.

Suggested Citation

  • Horn, Henrik & Sanctuary, Mark, 2023. "Investment Treaties and the Replacement of Stranded Investment," Working Paper Series 1479, Research Institute of Industrial Economics, revised 09 Feb 2024.
    • Handle: RePEc:hhs:iuiwop:1479
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    References listed on IDEAS

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    1. Guttorm Schjelderup & Frank Stähler, 2021. "Investor‐state dispute settlement and multinational firm behavior," Review of International Economics, Wiley Blackwell, vol. 29(4), pages 1013-1024, September.
    2. Eckhard Janeba, 2019. "Regulatory chill and the effect of investor state dispute settlements," Review of International Economics, Wiley Blackwell, vol. 27(4), pages 1172-1198, September.
    3. Aisbett Emma & Karp Larry & McAusland Carol, 2010. "Compensation for Indirect Expropriation in International Investment Agreements: Implications of National Treatment and Rights to Invest," Journal of Globalization and Development, De Gruyter, vol. 1(2), pages 1-35, December.
    4. 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, September.
    5. Horn, Henrik & Tangerås, Thomas, 2021. "Economics of international investment agreements," Journal of International Economics, Elsevier, vol. 131(C).
    6. Dolzer, Rudolf & Schreuer, Christoph, 2012. "Principles of International Investment Law," OUP Catalogue, Oxford University Press, edition 2, number 9780199651801.
    7. Frank Stähler, 2023. "An optimal investor-state dispute settlement mechanism," Journal of Economics, Springer, vol. 138(1), pages 1-16, January.
    8. Konrad, Kai A., 2017. "Large investors, regulatory taking and investor-state dispute settlement," European Economic Review, Elsevier, vol. 98(C), pages 341-353.
    9. Ossa, Ralph & Staiger, Robert W. & Sykes, Alan O., 2023. "Standing in international investment and trade disputes," Journal of International Economics, Elsevier, vol. 145(C).
    10. Emma Aisbett & Jonathan Bonnitcha, 2021. "A Pareto-Improving Compensation Rule for Investment Treaties," Journal of International Economic Law, Oxford University Press, vol. 24(1), pages 181-202.
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    Cited by:

    1. Horn, Henrik & Lavenius, Axel & Sanctuary, Mark, 2024. "Investment Treaties and the Threat to Biodiversity," CEPR Discussion Papers 19210, C.E.P.R. Discussion Papers.

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    Keywords

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    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
    • K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law

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