Large Investors, Regulatory Taking and Investor-State Dispute Settlement

35 Pages Posted: 11 Nov 2016 Last revised: 24 May 2017

See all articles by Kai A. Konrad

Kai A. Konrad

Max Planck Institute for Tax Law and Public Finance; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); IZA Institute of Labor Economics

Date Written: November 1, 2016

Abstract

This paper offers an economic analysis of the efficiency and distributive effects of an investor-state dispute settlement (ISDS) in markets with large investors. We first identify a reason for strategic over-investment by the domestic industry, leading to excessively permissive environmental regulation in the absence of an ISDS. We show that an ‘ideal’ investor-state dispute settlement arrangement (transaction-cost free, with untouchable, fully reliable, and unbiased judges) has positive and negative effects. It generates an equal level playing field for domestic and foreign investors, but it magnifies an existing over-investment problem. The results explain anecdotal evidence according to which ISDS institutions are liked by the domestic industry in the host country even if it protects foreign competitors, but ISDS is disliked by other interest groups in the host country.

Keywords: investment arbitration, settlement courts, time-consistent regulation, strategic investment

JEL Classification: Q68, K11, F21, F55

Suggested Citation

Konrad, Kai A., Large Investors, Regulatory Taking and Investor-State Dispute Settlement (November 1, 2016). Working Paper of the Max Planck Institute for Tax Law and Public Finance No. 2016-10. Available at SSRN: https://ssrn.com/abstract=2867879 or http://dx.doi.org/10.2139/ssrn.2867879

Kai A. Konrad (Contact Author)

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

HOME PAGE: http://www.tax.mpg.de/en/pub/home.cfm

Centre for Economic Policy Research (CEPR)

90-98 Goswell Road
London, EC1V 7RR
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, 81679
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, 53072
Germany

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