A Theoretical Perspective on Multilateral Agreements on Investment*

Abstract

This study provides a rationale for a multilateral investment agreement (MAI), an explanation of its obstacles in implementation, and a description of its welfare implications with particular focus on least developed countries (LDCs). A MAI negotiated by a club of governments with heterogeneous objectives reduces a time inconsistency problem of rent extraction from MNEs by governments but constitutes an information externality on non-members. At the same time, it is instable, and a regime emerges where there are many di-erent agreements comparable to bilateral investment treaties (BITs). However, an appropriately designed MAI is world-welfare improving compared to a regime of BITs by alleviating a political economy distortion.

Winning or losing in investor‐to‐state dispute resolution: The role of arbitrator bias and experience

“… A related literature discusses investment treaties as a possible solution to investor–state hold‐up problems. See Markusen (), or Turrini and Urban ().…”

The Economics of a Multilateral Investment Agreement

“…Turrini and Urban (2003) modeled a MAI as an exogenously-assumed uniform, absolute reduction in the share of profits retained by the host country. Their model does not capture the expropriation risk, nor does it account for the fact that industrialized countries have high tax rates.…”