International investment agreements have become increasingly controversial. The agreements are alleged to be beset with a large number of deficiencies that harm host countries in particular. For instance, they are said to cause “regulatory chill”, to distorts investment patterns, and to lead to
excessive litigation due to the Investor-State Dispute Settlement (ISDS) mechanisms they almost invariably contain.
Many of the issues brought up in this debate have evident economic aspects. But until recently there has been very little economic literature on the driving forces behind these agreements, on their appropriate design, and on their effects. There is a nascent theoretical literature on investment agreements and regulatory expropriations, however. This literature is still very much in its infancy. The purpose of this note is to explain in non-technical terms some observations that emerge from this early literature.
