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Large investors, regulatory taking and investor-state dispute settlement

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Konrad,  Kai A.
Public Economics, MPI for Tax Law and Public Finance, Max Planck Society;

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Citation

Konrad, K. A. (2017). Large investors, regulatory taking and investor-state dispute settlement. European Economic Review, 98, 341-353. doi:10.1016/j.euroecorev.2017.07.002.


Cite as: https://hdl.handle.net/21.11116/0000-0000-33B2-D
Abstract
This paper offers an economic analysis of an international investor-state dispute settlement regime (ISDS) in markets with large investors. It identifies a reason for strategic overinvestment by the domestic industry, leading to permissive regulation in the absence of ISDS. An “ideal” investor-state dispute settlement arrangement (efficiency- oriented, transaction-cost free, with untouchable, fully reliable, and unbiased judges) has positive and negative effects in this framework. It generates an equal level playing field for domestic and foreign investors, but it magnifies an existing overinvestment problem and may reduce world welfare. The results explain anecdotal evidence according to which ISDS that protects foreign investors is liked by the domestic industry and disliked by other interest groups in the host country.