DP14480 Investor-State vs. State-State Dispute Settlement
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 benefi
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 bene
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.