DP14480 Investor-State vs. State-State Dispute Settlement

Author(s): Henrik Horn, Thomas Tangerås
Publication Date: March 2020
Keyword(s): expropriation, IDSD, international investment agreement, regulatory chill
JEL(s): F21, F23, F55, K33
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14480

International investment agreements have been intensely criticized, and in particular the "ISDS" mechanisms that enable foreign investors to litigate against host countries. This paper examines the common claim that host countries benefiÂ?t from state-state dispute settlement (SSDS), since this yields less litigation. It assumes the standard rationale for ISDS, that SSDS causes political litigation costs. It shows how a host country might indeed beneÂ?fit from SSDS, but that there is no presumption that these conditions will prevail. Furthermore, negotiations regarding dispute settlement will plausibly yield ISDS, regardless of the distributional consequences for host countries, since SSDS is Pareto inefficient.