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International investment law between commitment and flexibility: a contract theory analysis

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abstract This article analyzes international investment protection law by using tools of economic contract theory. Contract theory has been applied to international trade law, but investment law has not yet been analyzed under this methodology. International Investment Agreements may be interpreted as a mechanism for overcoming commitment problems between investor and host state in order to generate mutual benefits. States trade credibility for sovereignty as international investment law restricts the regulatory conduct of states to an unusual extent, subject to control through compulsory international adjudication. A well-known problem in contract theory is how to deal with uncertainty. Changing conditions are a prevalent characteristic in investment law. Contract theory finds that too strict and inflexible contracts may impair the joint surplus of the contracting parties. Thus, a trade-off arises between ex ante commitment on the one hand and flexibility ex post in order to uphold the efficiency of the contract on the other. Those problems become virulent in unforeseen crises, such as financial or economic ones. This article analyzes commitment and flexibility mechanisms in international investment protection law and proposes to use similar mechanisms as in WTO law to design more optimal contracts.
   
type journal paper
   
keywords
   
language English
kind of paper journal article
date of appearance 6-2009
journal Journal of international economic law
publisher Oxford University Press (Oxford)
ISSN 1369-3034
ISSN (online) 1464-3758
DOI 10.1093/jiel/jgp022
volume of journal 12
number of issue 2
page(s) 507-538
review not reviewed
   
citation van Aaken, A. (2009). International investment law between commitment and flexibility: a contract theory analysis. Journal of international economic law, 12(2), 507-538, DOI:10.1093/jiel/jgp022.