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

Emma Aisbett, Larry Karp and Carol McAusland ()

No 648, CEPR Discussion Papers from Centre for Economic Policy Research, Research School of Economics, Australian National University

Abstract: International investment agreements in bilateral treaties or free trade agreements allow investors to bring compensation claims when their investments are hurt by new regulations addressing environmental or other social concerns. Compensation rules such as expropriation clauses in international treaties help solve post-investment moral hazard problems such as hold-ups, thereby helping to prevent inefficient over-regulation and encouraging foreign investment. However, when social or environmental harm is uncertain preinvestment, 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 can increase the level of foreign investment.

Keywords: foreign direct investment; regulatory takings; expropriation; international investment agreements; National Treatment; environment (search for similar items in EconPapers)
JEL-codes: F21 K3 Q58 (search for similar items in EconPapers)
Date: 2010-11
New Economics Papers: this item is included in nep-ifn, nep-law and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Journal Article: Compensation for Indirect Expropriation in International Investment Agreements: Implications of National Treatment and Rights to Invest (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:auu:dpaper:648

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