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Northwestern Pritzker School of Law
Bilateral investment treaties; transaction cost economic theory; stabilization clauses; International Finance Corporation
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Efficient Contracting Between Foreign Investors And Host States: Evidence From Stabilization Clauses, Sam Foster Halabi
Efficient Contracting Between Foreign Investors And Host States: Evidence From Stabilization Clauses, Sam Foster Halabi
Northwestern Journal of International Law & Business
Bilateral investment treaties are agreements between sovereign states that give broad protections to investors and investments made within the jurisdiction of the other state. The prevailing view in the academy and practice is that developing countries sign bilateral investment treaties in order to reassure investors from developed states that their investments will be safe from changes in domestic law. Without these "credible commitments," investors would be deterred from making investments, depriving developing countries of foreign capital. This Article disputes that view by demonstrating that foreign investors and host states effectively contract around the risk of changes in the law. This …