At the Edge of Chaos? Foreign Investment Law as A Complex Adaptive System, How It Emerged And How It Can Be Reformed

72 Pages Posted: 30 May 2013 Last revised: 5 Feb 2014

See all articles by Joost Pauwelyn

Joost Pauwelyn

Graduate Institute of International and Development Studies (IHEID); Georgetown University Law Centre

Date Written: January 24, 2014


Foreign investment law (FIL) is unlike any other sub-field of international law. Its unique features continue to puzzle observers. Two general themes recur. First, why do countries agree to so substantially limit their sovereign powers over foreign investors and, most strikingly, to open themselves up to direct claims in investor-state arbitration? Second, how can FIL survive given its composition of thousands of treaties, custom, domestic laws, contracts and (often contradictory) arbitration awards, without a controlling multilateral treaty or institution, or appellate court? This article draws on complexity theory and the notion of complex adaptive systems to offer an alternative, richer account of FIL. Approaching FIL as a complex adaptive system (CAS) allows us to better understand how FIL (i) emerged out of small, incremental and often accidental steps, (ii) operates as a largely self-organizing, decentralized system made up of many interacting components and (iii) stabilizes but also changes and evolves through a series of local, sub-optimal quasi-equilibria, highly sensitive to initial conditions that can be disturbed by both seismic events or major crises and minor mutations. The insights thus provided should also help participants in FIL to develop interventions or reforms that are more likely to be effective, in casu relatively small tweaks or adaptations which may have major repercussions. Seeking the edge of chaos, therefore, is not seeking disorder or randomness but the right balance between order and flexibility. This perspective should give pause to lawyers, generally critical of fragmentation and decentralization, and intuitively in search of order and central authority. Through the lens of complexity theory, FIL, with all its imperfections, and contrary to conventional wisdom, may not be one of law’s most pathological sub-fields in need of top-to-bottom reform. Though far from optimal, it may be an organizational life form more similar to species that have survived evolutionary biology and, in this sense, be a model that other legal regimes may want to learn and copy from.

Keywords: international cooperation, international investment law, ICSID, history of international law, international arbitration, chaos theory, evolutionary biology, complex adaptive systems, complexity theory, social networks, precedent, diffusion of treaties, bilateral investment treaties, NAFTA

Suggested Citation

Pauwelyn, Joost, At the Edge of Chaos? Foreign Investment Law as A Complex Adaptive System, How It Emerged And How It Can Be Reformed (January 24, 2014). Available at SSRN: or

Joost Pauwelyn (Contact Author)

Graduate Institute of International and Development Studies (IHEID) ( email )

PO Box 136
Geneva, Geneva CH-1211


Georgetown University Law Centre ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States

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