Compensation under Investment Treaties – as if Host Interests Mattered

In response to the growing crisis of legitimacy of the international investment treaty regime, we propose a new liability and compensation rule based on a law & economics understanding of the function of these treaties. While our rule does not always achieve a global first-best, it does ensure that participation in treaties brings benefits for both “host” and “source” states. This Pareto-improving property contrasts to the existing regime or previous canonical compensation rules.