A major challenge for investment treaty designers and adjudicators is to separate opportunistic behavior by host states that should be sanctioned under international law from bona fide public policy measures that should not. This article suggests that international investment agreements (iias) need to be both ‘smarter’ and more ‘flexible’ to better make that distinction. It draws on economic contract theory as a basic framework, and political economy theory for fine-tuning.
Scott and Stephansupra note 6 p. 76. Jean Tirole ‘Incomplete Contracts: Where Do We Stand?’ (1999) 64:4 Econometrica 741 743 defines an incomplete contract as one that “does not exhaust the contracting possibilities envisioned in the complete contract.”
Scott and Stephansupra note 6.
Scott and Stephansupra note 6 p. 77.
Example taken from Schroppsupra note 4 “[t]o grasp the concept of ex post regret consider the simple example of a fixed-price (non-contingent) contract that obliges one party to produce and the other party to buy a product. An earthquake destroys the production facilities and makes delivery as prescribed extremely costly: The producer will prefer not to perform; by means of a side payment to the buyer (exceeding the latter’s personal value of the good) both parties can be made better off by not conducting the transaction.” For a numerical example see Shavell supra note 20 footnote 4.
Schroppsupra note 4 p. 83 footnote 147.
Masten and Saussiersupra note 29 p. 286.
Article 10 General Exceptionssupra note 4: “1. Subject to the requirement that such measures are not applied in a manner that would constitute arbitrary or unjustifiable discrimination between investments or between investors or a disguised restriction on international trade or investment nothing in this Agreement shall be construed to prevent a Party from adopting or enforcing measures necessary: (a) to protect human animal or plant life or health; (b) to ensure compliance with laws and regulations that are not inconsistent with the provisions of this Agreement; or (c) for the conservation of living or non-living exhaustible natural resources.”