Investment Arbitration and Political Systems Theory

Abstract

This chapter suggests that political systems theory allows us to make better sense of the fragmented understanding we have today of investment law in general and of investment arbitration in particular. Relying on a theory by David Easton, the chapter presents investment arbitration as a political system: one that transforms the input of key actors into output, with feedback loops from the latter to the former. This perspective, the chapter contends, helps us get a better sense of some of the system’s key dynamics, including its conditions of stability, factors and direction of change, and the functions it is effectively called upon to fulfill. It grounds the discussion of the drivers of investment arbitration more closely in reality than do the common references to notions of obsolescing bargain, credible commitment, promotion of the rule of law, and development of sensible rules of state behaviour.

Keywords: investment arbitration, systems theory, regimes dynamics

JEL Classification: K41