Compensation for Indirect Expropriation in International Investment Agreements: Implications of National Treatment and Rights to Invest

Emma Aisbett, Larry Karp and Carol McAusland ()

Journal of Globalization and Development, 2010, vol. 1, issue 2, 35

Abstract: International investment agreements allow investors to bring compensation claims when their investments are hurt by new regulations. This requirement that host governments compensate for indirect expropriation helps solve post-investment moral hazard problems such as hold-ups, thereby helping to prevent inefficient over-regulation and encouraging foreign investment. However, when the social or environmental harm of a project is uncertain pre-investment, compensation requirements can interact with National Treatment clauses in a manner that reduces host government welfare and makes them less likely to admit investment. A police powers carve-out from the definition of compensable expropriation can be Pareto-improving and increase foreign investment.

Keywords: foreign direct investment; regulatory takings; expropriation; international investment agreements; National Treatment; environment (search for similar items in EconPapers)
Date: 2010
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DOI: 10.2202/1948-1837.1133

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