Hostname: page-component-669899f699-2mbcq Total loading time: 0 Render date: 2025-05-05T23:40:09.391Z Has data issue: false hasContentIssue false
  • English
  • Français

When the Claim Hits: Bilateral Investment Treaties and Bounded Rational Learning

Published online by Cambridge University Press:  08 April 2013

Lauge N. Skovgaard Poulsen  and
Emma Aisbett
Lauge N. Skovgaard Poulsen
Affiliation:
Danish Research Council Postdoctoral Fellow at Nuffield College, University of Oxford, and the Copenhagen Business School, Email: [email protected].
Emma Aisbett
Affiliation:
University of Hamburg, Germany. Email: [email protected].

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

Using the international investment regime as its point of departure, the article applies notions of bounded rationality to the study of economic diplomacy. Through a multimethod approach, it shows that developing countries often ignored the risks of bilateral investment treaties (bits) until they themselves became subject to an investment treaty claim. Thus the behavior of developing country governments with regard to the international investment regime is consistent with that routinely observed for individuals in experiments and field studies: they tend to ignore high-impact, low-probability risks if they cannot bring specific “vivid” instances to mind.

Type
Research Article
Information
World Politics , Volume 65 , Issue 2 , April 2013 , pp. 273 - 313
Copyright
Copyright © Trustees of Princeton University 2013

References

Aaken, Anne Van. 2010. “The International Investment Protection Regime through the Lens of Economic Theory.” In Waibel, Michael, Kaushal, Asha, Chung, Kyo-Hwa, and Balcin, Claire, eds., The Backlash against Investment Arbitration. Alphen aan den Rijn, Netherlands: Kluwer Law International.Google Scholar
Abdelal, Rawi, Blyth, Mark, and Parsons, Craig. 2010. “Introduction: Constructing the International Economy.” In Abdelal, Rawi, Blyth, Mark, and Parsons, Craig, eds., Constructing the International Economy. Ithaca, N.Y.: Cornell University Press.Google Scholar
Aisbett, Emma. 2009. “Bilateral Investment Treaties and Foreign Direct Investment: Correlation versus Causation.” In Sauvant, Karl and Sachs, Lisa, eds., The Effect of Treaties on Foreign Direct Investments. New York, N.Y.: Oxford University Press.Google Scholar
Allee, Todd, and Peinhardt, Clint. 2010. “Delegating Differences: Bilateral Investment Treaties and Bargaining over Dispute Resolution Provisions.” International Studies Quarterly 54, no. 1: 1–26.CrossRefGoogle Scholar
Allee, Todd, and Peinhardt, Clint. 2011. “Contingent Credibility: The Impact of Investment Treaty Violations on Foreign Direct Investment.” International Organization 65, no. 3: 401–32.CrossRefGoogle Scholar
Allison, Paul, and Waterman, Richard. 2002. “Fixed–Effects Negative Binomial Regression Models.” Sociological Methodology 32, no. 1: 247–65.CrossRefGoogle Scholar
Alvarez, Jose. 2011. The Public International Law Regime Governing International Investment. The Hague, Netherlands: Hague Academy of International Law.CrossRefGoogle Scholar
Arellano, Manuel, and Honoré, Bo. 2001. “Panel Data Models: Some Recent Developments.” In Heckman, James and Leamer, Edward, eds., Handbook of Econometrics, vol. 5. Amsterdam, Netherlands: Elsevier.Google Scholar
Beck, Thorsten, Clarke, George, Groff, Alberto, Keefer, Philip, and Walsh, Patrick. 2001. “New Tools in Comparative Political Economy: The Database of Political Institutions.” World Bank Economic Review 15, no. 1: 165–76.CrossRefGoogle Scholar
Blake, Daniel. 2010. “Thinking Ahead: Time Horizons and the Legalization of International Investment Agreements.” Working Paper.Google Scholar
Bubb, Ryan, and Rose-Ackerman, Susan. 2007. “BITs and Bargains: Strategic Aspects of Bilateral and Multilateral Regulation of Foreign Investment.” International Review of Law and Economics 27: 291–311.CrossRefGoogle Scholar
Busch, Marc, Reinhardt, Eric, and Shaffer, G.. 2009. “Does Legal Capacity Matter? A Survey of WTO Members.” World Trade Review 8, no. 4: 559–77.CrossRefGoogle Scholar
Büthe, Tim, and Milner, Helen. 2009. “Bilateral Investment Treaties and Foreign Direct Investment.” In Sauvant, Karl and Sachs, Lisa, eds., The Effect of Treaties on Foreign Direct Investment: Bilateral Investment Treaties, Double Taxation Treaties, and Investment Flows. New York, N.Y.: Oxford University Press.Google Scholar
Camerer, Colin. 2004. Behavioural Game Theory. Princeton, N.J.: Princeton University Press.Google Scholar
Camerer, Colin, and Kunreuther, Howard. 1989. “Decision Processes for Low Probability Events: Policy Implications.” Journal of Policy Analysis and Management 8, no. 4: 565–92.CrossRefGoogle Scholar
Camerer, Colin, Loewenstein, George, and Rabin, Matthew, eds. 2003. Advances in Behavioral Economics. Princeton, N.J.: Princeton University Press.Google Scholar
Conlisk, John. 1996. “Why Bounded Rationality?” Journal of Economic Literature 34, no. 2: 669–700.Google Scholar
Department of Trade and Industry (DTI), Republic of South Africa. 2009. Government Position Paper on Bilateral Investment Treaty Policy Framework Review.Google Scholar
Elkins, Zachary, Guzman, Andrew, and Simmons, Beth. 2006. “Competing for Capital: The Diffusion of Bilateral Investment Treaties, 1960–2000.” International Organization 60, no. 4: 811–46.CrossRefGoogle Scholar
Elkins, Zachary, Guzman, Andrew, and Simmons, Beth. 2010. “Replication Data for: Competing for Capital: The Diffusion of Bilateral Investment Treaties, 1959–2000.”Google Scholar
Elms, Deborah. 2000. “New Directions for IPE: Drawing from Behavioural Economics.” International Studies Review 10, no. 2: 239–65.CrossRefGoogle Scholar
Gilardi, Fabrizio, Füglister, Katharina, and Luyet, Stéphane. 2009. “Learning from Others: The Diffusion of Hospital Financing Reforms in OECD Countries.” Comparative Political Studies 42, no. 4: 549–73.CrossRefGoogle Scholar
Guzman, Andrew. 1998. “Why LDCs Sign Treaties That Hurt Them: Explaining the Popularity of Bilateral Investment Treaties.” Virginia Journal of International Law 38, no. 4: 639–88.Google Scholar
Hafner-Burton, Emilie, Hughes, Alex, and Victor, David. 2011. “The Behavioral Psychology of Elite Decision Making: Implications for Political Science.” ILAR Working Paper no. 19.Google Scholar
Hafner-Burton, Emilie, Leveck, Brad, Victor, David, and Fowler, James. 2012. “A Behavioural Approach to International Legal Cooperation.” ILAR Working Paper no. 13.Google Scholar
Haftel, Yoram, and Thompson, Alexander. 2012. “Why Do States Renegotiate International Agreements? The Case of Bilateral Investment Treaties.” Working Paper.Google Scholar
Hausman, Jerry, Hall, Bronwyn, and Griliches, Zvi. 1984. “Econometric Models for Count Data with an Application to the Patents-R&D Relationship.” Econometrica 52, no. 4: 909–38.CrossRefGoogle Scholar
Healy, Andrew, and Malhotra, Neil. 2009. “Myopic Voters and Natural Disaster Policy.” American Political Science Review 103, no. 3: 387–406.CrossRefGoogle Scholar
Herrera, Yoshiko. 2007. Imagined Economies: The Sources of Russian Regionalism. Cambridge, UK: Cambridge University Press.Google Scholar
Highhouse, Scott, Mohammed, Susan, and Hoffman, Jody. 2010. “Temporal Discounting of Strategic Issues: Bold Forecasts for Opportunities and Threats.” Basic and Applied Social Psychology 24, no. 1: 43–56.CrossRefGoogle Scholar
Hsu, Locknie. 2006. “MFN and Dispute Settlement: When the Twain Meet.” Journal of World Investment and Trade 7, no. 1: 25–37.CrossRefGoogle Scholar
Jandhyala, Srividya, Henisz, Witold, and Mansfield, Edward. 2011. “Three Waves of BITs: The Global Diffusion of Foreign Investment Policy.” Journal of Conflict Resolution 55, no. 6: 1047–73.CrossRefGoogle Scholar
Jervis, Robert. 1976. Perception and Misperception in International Politics. Princeton, N.J.: Princeton University Press.Google Scholar
Johnson, Eric, Hershey, John, Meszaros, Jacqueline, and Kunreuther, Howard. 2000. “Framing, Probability Distortions, and Insurance Decisions.” In Kahneman, Daniel and Tversky, Amos, eds., Choices, Values and Frames. New York, N.Y.: Cambridge University Press.Google Scholar
Jones, Bryan. 1999. “Bounded Rationality.” Annual Review of Political Science 2, no. 1: 297–321.CrossRefGoogle Scholar
Jones, Bryan, and Baumgartner, Frank. 2005. The Politics of Attention. Chicago, Ill.: University of Chicago Press.Google Scholar
Jupille, Joseph, Mattli, Walter, and Snidal, Duncan. Forthcoming. Institutional Choice in Global Commerce. Cambridge, UK: Cambridge University Press.CrossRefGoogle Scholar
Krebs, Ronald, and Rapport, Aaron. 2012. “International Relations and the Psychology of Time Horizons.” International Studies Quarterly 56, no. 3: 1468–78.CrossRefGoogle Scholar
Kunreuther, Howard, Meyer, Robert, Zeckhauser, Richard, Slovic, Paul, Schwartz, Barry, Schade, Christian, Luce, Mary, Lippman, Steven, Krantz, David, Kahn, Barbara, and Hogarth, Robin. 2002. “High Stakes Decision Making: Normative, Descriptive and Prescriptive Considerations.” Marketing Letters 13, no. 3: 259–68.CrossRefGoogle Scholar
Lake, David. 2009. “Open Economy Politics: A Critical Review.” Review of International Organizations 4, no. 3: 219–44.CrossRefGoogle Scholar
Legum, Barton. 2006. “Defining Investment and Investor: Who Is Entitled to Claim?” Arbitration International 22, no. 4: 521–26.CrossRefGoogle Scholar
Levy, Jack. 1994. “Learning and Foreign Policy: Sweeping a Conceptual Minefield.” International Organization 48, no. 2: 279–312.CrossRefGoogle Scholar
Mangklatanakul, Vilawan. 2011. “Thailand's First Treaty Arbitration: Gain from Pain.” In UNCTAD, Investor-State Disputes: Prevention and Alternatives to Arbitration II. Geneva, Switzerland: United Nations.Google Scholar
March, James. 2010. The Ambiguities of Experience. Ithaca, N.Y.: Cornell University Press.CrossRefGoogle Scholar
McClelland, Gary, Schulze, William, and Coursey, Don. 1993. “Insurance for Low-Probability Hazards: A Bimodal Response to Unlikely Events.” Journal of Risk and Uncertainty 7, no. 1: 95–116.CrossRefGoogle Scholar
McDermott, Rose. 2004. Political Psychology in International Relations. Ann Arbor, Mich.: University of Michigan Press.CrossRefGoogle Scholar
Meseguer, Covadonga. 2006. “Rational Learning and Bounded Rational Learning in the Diffusion of Policy Innovations.” Rationality and Society 18, no. 1: 35–66.CrossRefGoogle Scholar
Meseguer, Covadonga. 2009. Learning, Policy Making, and Market Reforms. Cambridge, UK: Cambridge University Press.CrossRefGoogle Scholar
Montt, Santiago. 2009. State Liability in Investment Treaty Arbitration: Global Constitutional and Administrative Law in the BIT Generation. Oxford, UK: Hart Publishing.Google Scholar
Neale, Margaret, and Bazerman, Max. 1991. Cognition and Rationality in Negotiations. New York, N.Y.: Free Press.Google Scholar
Odell, John. 2002. “Bounded Rationality and the World Political Economy: The Nature of Decision Making.” In Andrews, David, Henning, C. Randall, and Pauly, Louis, eds., Governing the World's Money. Ithaca, N.Y.: Cornell University Press.Google Scholar
Parra, Antonio. 1996. “Scope of New Investment Laws and International instruments.” Dawn. October 9, 10, 11, and 12.Google Scholar
Parlett, Kate 2011. The Individual in the International Legal System: Continuity and Change in International Law. Cambridge, UK: Cambridge University Press.CrossRefGoogle Scholar
Pinto, Pablo, Pinto, Santiago, and Stier-Moses, Nicolás. 2011. “Regulating Foreign Investment: A Study of the Properties of Bilateral Investment Treaties.” Working Paper.Google Scholar
Poulsen, Lauge. 2010. “The Importance of BITs for Foreign Direct Investment and Political Risk Insurance: Revisiting the Evidence.” In Sauvant, Karl, ed., Yearbook on International Investment Law and Policy 2009/2010. New York, N.Y.: Oxford University Press.Google Scholar
Poulsen, Lauge. 2014. “Bounded Rationality and the Diffusion of Modern Investment Treaties.” International Studies Quarterly 58, no. 1.Google Scholar
Ranjan, Prabhash. 2012. “International Investment Agreements and India's Regulatory Power as a Host Nation.” Ph.D. diss., Kings College.CrossRefGoogle Scholar
Reiter, Dan. 1996. Crucible of Beliefs: Learning, Alliances, and World Wars. Ithaca, N.Y.: Cornell University Press.CrossRefGoogle Scholar
Saban, Daniela, Bonomo, Flavia, and Stier-Moses, Nicolás. 2010. “Analysis and Models of Bilateral Investment Treaties Using a Social Networks Approach.” Physica A: Statistical Mechanics and Its Applications 389, no. 17: 3661–73.CrossRefGoogle Scholar
Salacuse, Jeswald. 1990. “BIT by BIT: The Growth of Bilateral Investment Treaties and Their Impact on Foreign Investment in Developing Countries.” International Lawyer 24, no. 3: 655–75.Google Scholar
Schill, Stefan. 2009. The Multilateralization of International Investment Law. Cambridge, UK: Cambridge University Press.CrossRefGoogle Scholar
Schneiderman, David. 2008. Constitutionalizing Economic Globalization: Investment Rules and Democracy's Promise. Cambridge, UK: Cambridge University Press.Google Scholar
Simmons, Beth, Dobbin, Frank, and Garrett, Geoffrey. 2006. “Introduction: The International Diffusion of Liberalism.” International Organization 60, no. 4: 781–810.CrossRefGoogle Scholar
Simon, Herbert. 1957. Models of Man. New York, N.Y.: Wiley.Google Scholar
Slovic, Paul, Fischhoff, Baruch, Lichtenstein, Sarah, Corrigan, Bernard, and Combs, Barbara. 2000. “Preference for Insuring against Probable Small Losses: Insurance Implications.” In Slovic, Paul, ed., The Perception of Risk. London, UK: Earthscan.Google Scholar
Slovic, Paul, Fischhoff, Baruch, and Lichtenstein, Sarah. 2000a. “Rating the Risks.” In Slovic, Paul, ed., The Perception of Risk. London, UK: Earthscan.Google Scholar
Slovic, Paul, Fischhoff, Baruch, and Lichtenstein, Sarah. 2000b. “Accidental Probabilities and Seat Belt Usage: A Psychological Perspective.” In Slovic, Paul, ed., The Perception of Risk. London, UK: Earthscan.Google Scholar
Slovic, Paul, Kunreuther, Howard, and White, Gilbert. 2000. “Decision Processes, Rationality and Adjustment to Natural Hazards.” In Slovic, Paul, ed., The Perception of Risk. London, UK: Earthscan.Google Scholar
Steinbrugge, Karl, McClure, Frank, and Snow, A.. 1969. “Studies in Seismicity and Earthquake Damage Statistics.” Washington, D.C.: United States Department of Commerce.Google Scholar
Sunstein, Cass, ed. 2000. Behavioral Law and Economics. Cambridge, UK: Cambridge University Press.CrossRefGoogle Scholar
Thaler, Richard, ed. 2005. Advances in Behavioral Finance, vol. 2. Princeton, N.J.: Princeton University Press.Google Scholar
Tversky, Amos, and Kahneman, Daniel. 1973. “Availability: A Heuristic for Judging Frequency and Probability.” Cognitive Psychology 5, no. 2: 207–32.CrossRefGoogle Scholar
United Nations Conference on Trade and Development (UNCTAD). 1998. Bilateral Investment Treaties in the Mid-1990s. Geneva, Switzerland: United Nations.Google Scholar
United Nations Conference on Trade and Development (UNCTAD). 1999. Trends in International Investment Agreements: An Overview. Geneva, Switzerland: United Nations.Google Scholar
United Nations Conference on Trade and Development (UNCTAD). 2002. Progress Report: Work Undertaken within UNCTAD's Work Programme on International Investment Agreements between the 10th Conference of UNCTAD, Bangkok, February 2000 and July 2002. Geneva, Switzerland: United Nations.Google Scholar
United Nations Conference on Trade and Development (UNCTAD). 2007. Investor-State Dispute Settlement and Impact on Investment Rulemaking. Geneva, Switzerland: United Nations.Google Scholar
United Nations Centre on Transnational Corporations (UNCTC). 1988. Bilateral Investment Treaties. New York, N.Y.: United Nations.Google Scholar
Van Harten, Gus. 2007. Investment Treaty Arbitration and Public Law. Oxford, UK: Oxford University Press.Google Scholar
Van Harten, Gus. 2010. “Five Justifications for Investment Treaties: A Critical Discussion.” Trade, Law and Development 2, no. 1: 19–58.Google Scholar
Vertzberger, Yaacov. 1998. Risk-Taking and Decision Making: Foreign Military Intervention Decisions. Stanford, Calif.: Stanford University Press.CrossRefGoogle Scholar
Wakslak, Cheryl, and Trope, Yaacov. 2009. “The Effect of Construal Level on Subjective Probability Estimates.” Psychological Science 20, no. 1: 52–58.CrossRefGoogle ScholarPubMed
Wälde, Thomas. 2005. “The ‘Umbrella’ Clause in Investment Arbitration: A Comment on Original Intentions and Recent Cases.” Journal of World Investment and Trade 6, no. 2: 183–236.Google Scholar
Walter, Stefanie, and Willett, Thomas. 2011. “Delaying the Inevitable: A Political Economy Approach to Currency Defences and Depreciation.” Review of International Political Economy 19, no. 1: 114–39.CrossRefGoogle Scholar
Weyland, Kurt. 2006. Bounded Rationality and Policy Diffusion: Social Sector Reform in Latin America. Princeton, N.J.: Princeton University Press.Google Scholar
Weyland, Kurt. 2009. “The Diffusion of Revolution: ‘1848’ in Europe and Latin America.” International Organization 62, no. 3: 391–423.CrossRefGoogle Scholar
Weyland, Kurt. 2010. “The Diffusion of Regime Contention in European Democratization, 1830–1940.” Comparative Political Studies 43, no. 8–9: 1148–76.CrossRefGoogle Scholar
Yackee, Jason. 2008. “Conceptual Difficulties in the Empirical Study of Bilateral Investment Treaties.” Brooklyn Journal of International Law 33, no. 2: 405–41.Google Scholar