Does the International Investment Regime Induce Frivolous Litigation?

39 Pages Posted: 19 May 2016  

Krzysztof Pelc

McGill University

Date Written: May 10, 2016

Abstract

The treatment of foreign investment has become the most controversial issue in global governance. At the centre of the controversy lies the mechanism of investor-state dispute settlement (ISDS), which allows private firms legal recourse against governments, if government interference has degraded their investment. Using newly released data covering 696 investment disputes, I assess some of the central claims about ISDS. I argue that the regime has indeed undergone a major shift: a majority of claims deal not with direct takings by low rule of law countries, but with regulation in democratic states. The result of this shift towards indirect expropriation affects firms’ incentives: claimants may gain even when they lose a challenge, if litigation can deter governments’ regulatory ambitions. The result, as I show, is an increase in the number of cases, accompanied by a precipitous decrease in their legal merit. Investors bringing indirect expropriation claims also appear far less likely to settle, and more likely to publicize the dispute, consistently with theoretical expectations.

Keywords: ISDS, Investment, ICSID, Dispute Settlement, Expropriation, Regulatory Chill

JEL Classification: K33

Suggested Citation

Pelc, Krzysztof, Does the International Investment Regime Induce Frivolous Litigation? (May 10, 2016). Available at SSRN: https://ssrn.com/abstract=2778056 or http://dx.doi.org/10.2139/ssrn.2778056

Krzysztof Pelc (Contact Author)

McGill University ( email )

855 Sherbrooke St. W
Montreal, Quebec H3A 2T7
Canada

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