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Working Paper No. 1248

Investor-State vs. State-State Dispute Settlement

Working Paper
Horn, Henrik and Thomas Tangerås (2018). “Investor-State vs. State-State Dispute Settlement”. IFN Working Paper No. 1248. Stockholm: Research Institute of Industrial Economics (IFN).

Henrik Horn, Thomas Tangerås

International investment agreements typically permit foreign investors to litigate against host countries (Investor-State Dispute Settlement, ISDS). Yet, common criticism holds that host countries would benefit from allowing only foreign governments to litigate (State-State Dispute Settlement, SSDS). We analyze the negotiated dispute settlement mechanism when SSDS generates political costs that affect the source country's incentives to initiate disputes and the host country's incentives for opportunistic regulation of investments. We show that agreements might rely exclusively on SSDS for given obligations regarding investment protection. However, investment agreements will always include ISDS when countries negotiate both dispute settlement and investment protection.

Henrik Horn

+46 (0)8 665 45 40

Thomas Tangerås

+46 (0)8 665 4526
+46 (0)70 727 5448