Allee - Delegating Differnces - Bilateral Investment Treaties and Bargaining Over Dispute Resolution Provisions

International Studies Quarterly (2010) 54, 1–26
Delegating Differences: Bilateral Investment

Treaties and Bargaining Over Dispute
Resolution Provisions
Todd Allee
University of Illinois
AND
Clint Peinhardt
University of Texas at Dallas
Bilateral investment treaties (BITs) have become the dominant source

of rules on foreign direct investment (FDI), yet these treaties vary signif-
icantly in at least one important respect: whether they allow investment
disputes to be settled through the International Centre for the Settle-
ment of Investment Disputes (ICSID). Through the compilation and
careful coding of the text of nearly 1,500 treaties, we identify systematic
variation in ‘‘legal delegation’’ to ICSID across BITs and explain this
important variation by drawing upon a bargaining framework. Home
governments prefer and typically obtain ICSID clauses in their BITs,
particularly when internal forces push strongly for such provisions and
when they have significantly greater bargaining power than the other
signatory. Yet some home governments are less likely to insist upon
ICSID clauses if they have historical or military ties with the other
government. On the other hand, although host governments are often
hostile toward ICSID clauses, particularly when sovereignty costs are
high, they are more likely to consent to such clauses when they are
heavily constrained by their dependence on the global economy. Our
findings have significant implications for those interested in FDI,
legalization, international institutions, and interstate bargaining.
For more than 200 years, countries have fought over the regulation of foreign
investment. According to noted international law scholar Oscar Schachter:
‘‘[a]part from the use of force, no subject of international law seems to have
aroused as much debate—and often strong feelings—as the question of the stan-
dard for payment of compensation when foreign property is expropriated’’
(quoted in Guzman 1998:638). States that host foreign investment not only
affirm their sovereign right to expropriate foreign-owned assets as public needs
dictate, but also assert their preference to resolve any disputes over those
Authors’ notes: We thank Anne Dutia, Kris Miler, panel participants at the 2007 International Studies Association
meetings, and two anonymous reviewers for their helpful comments on this paper. We also benefited from the able
research assistance of Richard Laird and Masaki Nakamoto, as well as Kacem Ayachi, Alex Fit-Florea, and Anca
Turcu. Funding for the coding of the treaties was provided by the University of Texas at Dallas. Replication data
are available via the Dataverse Network Project (http://www.dvn.iq.harvard.edu/dvn/dv/isq).
2010 International Studies Association

2 Delegating Differences
seizures in domestic courts. Foreign investors seldom challenge the host state’s
right to seize assets, but they do insist on adequate payment for the govern-
ment’s taking and fair procedures for resolving disputes.
The latest development in this historical battle is the evolution of an ever-
expanding collection of bilateral investment treaties (BITs), which set the rules
of investment between a pair of states and establish a course of action for the
settlement of investment-related disputes. Nearly all governments are parties to
at least one, if not several, of the thousands of BITs currently in existence. Not
surprisingly, scholars have begun to investigate questions such as why countries
sign BITs (Guzman 1998; Elkins, Guzman, and Simmons 2006) and what
impact BITs have on foreign direct investment, or FDI (Hallward-Driemeier
2003; Neumayer and Spess 2005; Rose-Ackerman and Tobin 2005; Salacuse and
Sullivan 2005; Büthe and Milner 2009; Kerner 2009). Regardless of the ques-
tion asked, existing empirical scholarship assumes that BITs are uniform and
treats the contents of BITs as fixed. This perception is widespread. Guzman
(1998), for example, notes that the United States’ BITs are virtually identical,
and that ‘‘looking beyond United States treaties, BITs in place around the
world are quite similar to one another’’ (p. 654). Similarly, Vandevelde (2000)
asserts that ‘‘regardless of which states negotiate BITs, provisions of these
agreements are remarkably uniform’’ (p. 469).
Although many elements of BITs are quite similar across treaties, upon clo-
ser inspection it becomes clear that important components vary considerably
from one treaty to the next. A United Nations Conference on Trade and
Development (UNCTAD 1998) survey of BITs observes: ‘‘…despite the appar-
ent uniformity among many BIT provisions, there are many significant differ-
ences in the formulation of individual provisions’’ (p. 139). Lost in the
existing literature on BITs is the fact that important details of the treaties are
negotiated on a treaty-by-treaty basis. Sornarajah (2000:218) echoes this point
in his detailed legal analysis of investment dispute settlement: ‘‘There is a fal-
lacy promoted that these treaties are uniform…[e]ach treaty has an internal
balance that has been negotiated by the parties and has to be carefully
construed.’’
Among the issues that are carefully negotiated by BIT signatories are proce-
dures for the settlement of any future disputes that might arise between for-
eign firms and the governments in which they invest. Legal scholars have
singled out these investor-state1 dispute settlement clauses within BITs as per-
haps the single most important aspect of the treaties (Ginsburg 2005; Franck
2007a,b,c; Yackee 2007). Susan Franck (2007c), for one, claims these clauses
represent the ‘‘real innovation’’ in BITs (p. 343). Empirically, there is consid-
erable variation in investor-state dispute settlement provisions across BITs, with
some treaties providing investors with direct access to international arbitration
through one or more permanent venues, some allowing for ad hoc arbitra-
tion, and others dictating the use of domestic courts to resolve disputes (for
example, UNCTAD 1998; Sornarajah 2000). The most notable difference
among treaties is whether they include dispute settlement via the Interna-
tional Centre for the Settlement of Investment Disputes (ICSID), an indepen-
dent organization affiliated with the World Bank (Hirsch 1992; Baker 1999;
Sornarajah 2000; Schreuer 2001). For reasons we detail shortly, ICSID is the
most important institution for the settlement of these types of investment
disputes.
1
We focus exclusively on dispute settlement in investor-state disputes. Although most BITs also contain provi-
sions for arbitration of state-to-state investment disputes, such disputes are of lower frequency and prominence than
investor-state disputes.
Todd Allee and Clint Peinhardt 3
Whether or not a BIT allows foreign investors to challenge a government’s

actions before ICSID is often contentious and can be highly consequential.2 Gov-
ernments whose firms engage in considerable outward FDI (‘‘home’’ govern-
ments) typically prefer investment disputes to be settled through international
arbitration, whereas governments that receive substantial inward FDI (‘‘host’’ gov-
ernments) generally prefer to have disputes over the treatment of foreign invest-
ment handled by domestic courts. BIT negotiations must resolve this conflict to
finalize an agreement. Such resolution can be protracted, as a host government
that allows its actions to be challenged before ICSID faces potential new costs, as it
stands to lose the benefits of any ‘‘taking’’ if the action is deemed by an ICSID tri-
bunal to be a breach of BIT obligations. Moreover, being found ‘‘guilty’’ in one or
more ICSID disputes could cause broader damage if outside investors then begin
to question the environment within the host state (Allee and Peinhardt 2008).
In this paper, we identify and account for this important and consequential
variation in dispute settlement provisions across BITs. Through the careful cod-
ing and analysis of the text of nearly 1,500 BITs, we find that whether a BIT
allows ICSID arbitration varies systematically, and is explained largely by charac-
teristics of the two signatories and the nature of their bilateral relationship.
Home governments, especially those with domestic interests that strongly pro-
mote ICSID clauses, typically obtain the inclusion of such clauses in their BITs
due to their strong preferences and superior bargaining power. Host govern-
ments are often resigned to accept the delegation of dispute settlement authority
to ICSID unless they have some type of special tie with the home country or are
in a stronger economic position. Surprisingly, home governments are not more
insistent upon ICSID clauses in their BITs with countries that have poor legal
institutions or unstable political systems. In other words, international arbitration
through ICSID is not a substitute for poor domestic institutions in host coun-
tries, but rather is a commonly preferred course of action for powerful countries,
who often, but not always, attain their preferred outcomes in BIT negotiations.
These findings provide important new evidence that BITs vary in systematic ways,
and open new avenues of research on a wide range of international agreements.
Legalization, Delegation, and ICSID Arbitration

The rapid expansion of investment treaties reflects the increasing legalization of
international relations, or ‘‘the decision in different issue areas to impose inter-
national legal constraints on governments’’ (Goldstein, Kahler, and Keohane
2000:386). In general, all investment agreements constrain signatories by specify-
ing certain core standards for treatment of FDI within their borders.3 The most
2
In this research, we explain the intentional decision of two states to design their BITs investor-state dispute
settlement clause in a particular way, given the anticipated consequences of that choice at the time the treaty was
signed. A handful of recent ICSID awards have led to certain unintended consequences, yet these consequences
were not known to BIT signatories at the earlier time at which they negotiated their respective BITs—and thus they
are irrelevant to our analyses. One such unanticipated development is the idea encapsulated in the 1997 ICSID
arbitral ruling in Maffezini v. Spain, which suggested that investors could incorporate provisions of other BITs by ref-
erencing most favored nation (MFN) clauses. Although this ruling has not been used to justify ICSID as an appro-
priate venue for dispute settlement, some legal scholars suggested that the Maffezini award opened the possibility
for such an argument. But in reality the Maffezini award was somewhat narrow, and listed a range of exceptions in
which MFN could not be used for ‘‘treaty shopping,’’ which included incorporating other sites of arbitration when
there is explicit ‘‘reference to a specific forum, such as ICSID’’ (Hsu 2006:28; see also UNCTAD 2007c). At least
three subsequent ICSID tribunals have taken direct issue with the Maffezini ruling on MFN and dispute settlement,
and many legal scholars now reject the idea that MFN can be used as a justification for ICSID arbitration (see
UNCTAD 2007c; Yackee 2007:18). For additional legal discussions of the Maffezini award, see Freyer and Herlihy
(2005), Hsu (2006), UNCTAD (2007c), and Lowenfeld (2008).
3
At the most fundamental level, all BITs guarantee absolute standards of treatment (fair and equitable treat-
ment, full protection and security, minimum standard of treatment according to customary international law) and
relative standards of treatment (MFN status and national treatment). See UNCTAD (2007b:28–43).
constraining elements of BITs are their enforcement procedures, as reflected in

the language regarding procedures for investor-state dispute settlement. BITs
that allow disputes to be resolved through ICSID impose the greatest constraints
on signatories because they transfer the important functions of treaty interpreta-
tion and enforcement from the domestic level to the international level. By pro-
viding multinational corporations (MNCs) with direct recourse before ICSID,
these host governments now risk having their actions toward foreign investment
reviewed by impartial legal tribunals, which could order them to pay billions of
dollars in damages to aggrieved multinationals.
Drawing further on the legalization literature, one might say that BITs vary
considerably in their degree of ‘‘legal delegation.’’ According to Abbott, Keoh-
ane, Moravcsik, Slaughter, and Snidal (2000:415): ‘‘the characteristic forms of
legal delegation are third-party dispute settlement mechanisms authorized to
interpret rules and apply them to particular facts (and therefore in effect to
make new rules, at least interstitially) under established doctrines of interna-
tional law.’’ At the low end of the legal delegation continuum, investment trea-
ties sometimes simply encode the Calvo Doctrine, which asserts host states’
demands that disputants exhaust all local remedies (for example, domestic
courts or investment decision bodies) before appealing to international arbitra-
tion. In other instances the treaties may provide for the middle-range option of
ad hoc arbitration, typically through a procedure defined in the BIT itself
or through general UN Commission on International Trade Law (UNCITRAL)
rules.4 At the highest end of delegation, BITs may require investment disputes to
be settled via a standing arbitration institution, most notably ICSID.5
Because of its organizational structure and procedural rules, ICSID stands
alone and represents the highest degree of delegation among options for settling
investor-state disputes. First of all, ICSID is the only investment arbitration body
that functions like a centralized international organization (for example, Hirsch
1992; Shihata 1992; Baker 1999; Sornarajah 2000). It has a governing Administra-
tive Council, to which member-states send a representative, as well as a secretar-
iat that disseminates information. Most notably, ICSID is headed by a secretary-
general, who in this case is endowed with the ability to determine whether ICSID
has jurisdiction in certain cases and to appoint arbitrators if necessary. Further-
more, ‘‘…because ICSID had been set up by an international convention
between states, it stands higher in the hierarchy of international tribunals than
those created by private bodies like the International Chamber of Commerce’’
(Sornarajah 2000:52). ICSID also has direct ties to the World Bank, which gives
it additional ‘‘institutional gravitas’’ and leverage over states who may anticipate
a need for future World Bank financing (Franck 2007c:372). Most importantly,
ICSID awards are not only binding on participant states, but carry the same
effect as an award rendered by a domestic court (see Hirsch 1992; Shihata 1992;
Baker 1999; Sornarajah 2000). Grounds for appeal are very limited, too.6 ICSIDs
rules also are quite specific in terms of the appointment of arbitrators and
requirements of exclusive use.
The International Centre for the Settlement of Investment Disputes can be dis-
tinguished clearly from the other ad hoc and institutional venues through which
international arbitration takes place. Governments who sign a BIT can agree to
4
UNCITRAL does not handle arbitrations directly, but has played a central role in spreading rules of arbitra-
tion to other bodies by distributing a set of arbitration rules that can be used in any setting.
5
This general pattern of variation in dispute settlement provisions is consistent with studies of dispute settle-
ment design in other issue areas, such as trade (see Smith 2000).
6
In fact, ‘‘appeals’’ are not allowed at all. Grounds for annulment of an award are limited to reexamination by
another ICSID tribunal of five elements of the original proceeding, including improper constitution of the tribunal,
corruption, departure from fundamental rules of procedure, or lack of reasoning in the award. See Schreuer
(2001).
ad hoc arbitration using UNCITRAL rules, which is quite common, yet several
observers have proclaimed ad hoc arbitration to be inferior to institutionalized
alternatives such as ICSID (for example, Slate 1996; UNCTAD 1998; Sornarajah
2000; Franck 2007a). Under ad hoc arbitration, parties must identify locations
and dates for hearings, select and appoint arbitrators, deal with various objec-
tions, determine compensation, and facilitate award procurement—all areas that
are greatly facilitated by ICSID. Although a number of other institutionalized
arbitration bodies also hear investment-related disputes, many of these bodies
focus heavily or even exclusively on private commercial arbitration involving two
nonstate actors, in contrast to our emphasis on the more politically salient
domain of investor-state disputes, a domain in which ICSID is preeminent.7
Among the arbitration centers that also hear investor-state disputes,8 ICSID
emerges as the dominant venue for investor-state arbitration due to its scope, sal-
ience, and frequency of inclusion in BITs. Other arbitration centers are regionally
focused and therefore relevant only to a limited number of actors, whereas
membership in ICSID is nearly universal, as 156 countries have signed the ICSID
Convention. ICSID’s broad reach is further reflected in basic patterns of arbitra-
tion-venue inclusion in BITs. Indeed, among the 1,473 BITs for which we have sys-
tematically coded dispute settlement provisions, 1,192 (81%) allow investor access
to ICSID tribunals, either as the primary venue for arbitration (412 BITs, or 28%)
or as one of several arbitration options (780 BITs, or 53%). In contrast, the Inter-
national Chamber of Commerce in Paris, the second most commonly referenced
option for institutionalized arbitration, is listed as an option in only 6% of BITs, or
92 total treaties. Although ICSID has become more prominent recently, a majority
of the BITs from the period 1965–1985 also allowed for arbitration through ICSID.
Once included in treaties, ICSID receives the overwhelming majority of investor-
state disputes, including those that are among the most high-stakes of all interna-
tional disputes. Data recently compiled by UNCTAD suggests that investors have
turned to ICSID more than seven times as frequently as other institutionalized
arbitration bodies. Franck’s analyses of the UNCTAD data indicates that ICSID has
been used 156 times in investor-state dispute settlement while other institutional
arbitration options have been used only 23 times (Franck 2007a:38–39). These
ICSID disputes actually dominate the general international arbitration landscape.
According to the 2007 version of the biennial Arbitration Scorecard, 36 of the world’s
50 largest treaty-based arbitrations across all issue areas were being addressed by
ICSID.9 These ICSID disputes are also quite salient, as 16 of the aforementioned
36 disputes before ICSID involved stakes of $1 billion or more.
Although widespread, the inclusion of ICSID provisions in BITs is far from
universal. A relatively recent UNCTAD (1998:139) report proclaims that ‘‘…there
continue to be significant variations in recently signed BITs, even in those signed
by the same countries.’’ Even powerful governments like the United States,
which may prefer the inclusion of ICSID clauses and incorporate them into their
model BITs, do not always successfully obtain the inclusion of ICSID clauses in
the BITs they conclude. For instance, 11 of the 13 BITs signed by the United
States in the mid-to-late 1980s contained relatively straightforward procedures to
have disputes arbitrated through ICSID, yet the treaties with Morocco and Tur-
key included unique language that gave these two countries more control over
dispute resolution and required disputes to be dealt with first in Moroccan and
Turkish courts (see Vandevelde 1992:172–185). Clearly, then, the question of
7
See Mattli (2001) for an examination of private commercial arbitration.
8
Arbitration centers that also hear investor-state disputes include the International Chamber of Commerce in
Paris, the Stockholm Arbitration Institute, and the Cairo Regional Centre for International Commercial Arbitration.
These and other regional centers are sometimes listed in BITs, yet they are included far less frequently than
recourse to ICSID.
9
‘‘Arbitration Scorecard 2007: Top 50 Treaty Disputes.’’ The American Lawyer, June 13, 2007.
which BITs specify dispute settlement through ICSID does not have a simple
answer, but instead requires more systematic investigation.
Theoretical Framework
To understand why legal delegation to ICSID varies across treaties, we first out-
line a basic model of BIT negotiations over investor-state dispute settlement pro-
visions. This conceptualization emphasizes three features of the process by which
BITs are generated, which then provide essential building blocks for the hypoth-
eses we present later.
BIT Negotiations over Dispute Settlement Clauses

First, important components of BITs, such as investor-state dispute settlement
clauses, are concluded only after several rounds of negotiations between states.
Negotiations are a crucial part of the process of generating a BIT. In fact, the
1998 UNCTAD report contains an entire chapter that examines global BIT nego-
tiations, identifying common dynamics such as the exchange of drafts and count-
erdrafts, alternation of negotiations between countries, and the tendency to
negotiate difficult provisions face-to-face in later rounds. The report ultimately
asserts: ‘‘…the key point to be stressed is that each negotiation is a unique and
peculiar process requiring flexibility and accommodation’’ (UNCTAD 1998:28).
Vandevelde (1992) depicts similar dynamics in discussing his first-hand experi-
ence with the US treaty program, including the example of how the United
States held five rounds of multiday negotiations for more than 4 years to reach
agreement on the US–Egypt BIT (pp. 35–36). During the course of such negotia-
tions, the content of investor-state dispute settlement clauses is among the most
difficult issues to negotiate (Vandevelde 1992; UNCTAD 1998:139–140).
Second, BIT negotiations typically take place between a clearly identifiable
‘‘home’’ and ‘‘host’’ country. In other words, most BITs are negotiated between
a capital-exporting state, or the ‘‘home’’ state of any future FDI, and a capital-
importing state, which is the likely ‘‘host’’ state of any future investment. Other
studies of BITs have noted a similar pattern and have organized their analyses
with this dynamic in mind (Guzman 1998; Elkins et al. 2006). We emphasize that
these are dyad-specific classifications; a middle-income country might be the
‘‘home’’ state in one BIT but the ‘‘host’’ state in another. This schema applies
to and encompasses all treaties, including the majority of those which are
between a developed and developing country, as well as the increasing number
of recent BITs that are between pairs of developing countries. In operational
terms, we treat the country with the larger GDP per capita as the home country.
This ordering is justified on empirical grounds, as the median GDP per capita
for the ‘‘home’’ state among the BITs in our data set is $16,285, while the com-
parable number for ‘‘host’’ states is $1,286.10 Because this coding rule produces
a few peculiarities, we use a series of theoretically informed coding rules to
refine the GDP per capita-based classification, which results in a reversal of the
ordering in fewer than 1% of treaties.11 None of our estimated findings are
sensitive to this reclassification, however.
10
All GDP data in this article are expressed in constant US dollars (in this case, constant 2,000 US dollars) and
are taken from World Development Indicators (WDI).
11
The following rules are used to determine reordering: (i) an Organization for Economic Cooperation and
Development (OECD) state should be listed first in BITs with a non-OECD state, (ii) large economies (defined as a
state with five times the aggregate GDP of the other) should be listed first, provided that their GDP per capita is at
least one third of the value of the other, and (iii) in cases where the two GDP per capita values differ by less than
one third, the state with the greater aggregate GDP is listed first, provided that its aggregate GDP is at least twice
that of the other state.
Third, home governments generally prefer to include recourse to ICSID in

their BITs, whereas host countries typically oppose transferring dispute settle-
ment authority to ICSID. Delegating dispute settlement to third parties such as
ICSID is, in principle, beneficial to both sides. Foreign investors now become
more confident that local assets will be protected from either outright or creep-
ing expropriation (Minor 1994). In turn, host governments can commit more
credibly to respect foreign assets, which should lead to increased FDI inflows.
These symbiotic benefits are consistent with Shihata’s (1992:5–6) claim that
ICSID’s ‘‘paramount objective’’ is ‘‘to promote a climate of mutual confidence
between investors and states favorable to increasing the flow of resources to
developing countries under reasonable conditions.’’ Although ICSID delegation
could benefit both parties, it also brings with it myriad costs that negatively affect
host governments in ways that are largely irrelevant for home governments.
In fact, home governments consistently should prefer to delegate dispute settle-
ment authority to ICSID because such a move provides numerous benefits—to
both these governments and their firms—at little cost. For outwardly oriented
firms in home governments, ‘‘It is the ability to access a tribunal outside the sway
of the Host State which is the principal advantage of a modern investment treaty’’
(Thomas Wälde quoted in Yackee 2007:16). These firms therefore will prefer to
have access to ICSID because this decreases transaction costs associated with
investment in uncertain environments, and helps to resolve problems that arise
from incomplete contracting, which are likely to be substantial when faced with
differing legal, cultural, and often linguistic environments. Home-state govern-
ments also have clear interests in inserting ICSID clauses to the extent that pleas-
ing their MNCs—by giving them the ability to pursue claims directly through
international arbitration—generates political rewards (see Kahler 2000b:668).
Delegation to ICSID also allows home governments to exclude themselves from
direct involvement in investment disputes and instead to focus government
resources on higher-priority tasks. Although home governments might be
tempted to include additional options for dispute settlement in BITs to be able
to ‘‘forum shop’’ for the most favorable situation (see Brower 2005), the inclu-
sion of multiple options for dispute settlement opens the door to delay and
removes the efficiency gains associated with exclusive delegation to ICSID. Our
assumption of home-state preferences for delegation to ICSID is supported by the
fact that most OECD countries include ICSID provisions in their ‘‘model BITs,’’
which serve as their ideal starting point for their negotiations with a BIT partner
(for example, Vandevelde 1992, 2000; Dolzer and Stevens 1995; UNCTAD 1998).
Evidence from real-world negotiations also reveals that governments like the
United States bargain particularly hard on the issue of allowing binding, interna-
tional arbitration of investor-state disputes (Vandevelde 1992:159–185).
In sharp contrast, host governments—even those who are eager to sign a
BIT—generally resist the inclusion of international arbitration provisions in their
BITs because the promise of increased FDI due to legal delegation is outweighed
by a range of substantial costs (for example, Hirsch 1992; Dolzer and Stevens
1995; Guzman 1998). According to UNCTAD (1998), ‘‘[t]he goal for a develop-
ing country in concluding a BIT, then, is to maximize its benefits in the form of
increased flows of FDI, while minimizing its costs in the form of obligations and
commitments that may prove burdensome or expensive in the future…’’ (p. 7).
The sovereignty costs of accepting ICSID have always been a major concern for
developing countries, many of whom have taken a decidedly ‘‘hostile’’ attitude
toward ICSID (Hirsch 1992:37). Several developing countries opposed the crea-
tion of ICSID in the first place and have been reluctant to include recourse to
ICSID in their treaties (see Dolzer and Stevens 1995; Lowenfeld 2008). Brazil,
for instance, consistently has been unwilling to ratify BITs due in large part to
concerns with ICSID (Peterson and Simões e Silva 2008). More recently, the
governments of Ecuador, Bolivia, and Venezuela have begun to rescind their

membership in ICSID due to sovereignty-based concerns. A recent study by
Vandevelde (2005–2006) concludes that ‘‘[d]eveloping countries may come to
see the agreements as poor bargains in which states surrender portions of their
sovereignty and subject themselves to costly arbitrations with investors, without
having gained appreciable new investments as a result’’ (p. 186).
The broad scope of ICSID’s reach is a primary source of these developing
country concerns with sovereignty costs. Fears over the loss of sovereignty are jus-
tified, according to Dolzer and Schreuer (2008), who identify the uniquely wide-
ranging nature of investment rules: ‘‘The rules of foreign investment touch upon
domestic regulations as diverse as labor law, the organization of the judiciary,
administrative principles, environmental law, health law, and, of course, rules
governing property’’ (pp. 9–10). As Elkins et al. (2006) note, ‘‘virtually any legal
change or rule that affects foreign investors is potentially subject to review by a
foreign tribunal’’ (p. 825).
The financial costs of ICSID delegation for host governments can be substan-
tial as well. Franck (2007a:67–68) details the substantial costs of appearing before
ICSID—a concern repeatedly raised by multilateral developing country institu-
tions (for example, UNCTAD 2007c)—and notes that the Czech Republic spent
more than $10 million in defending two recent disputes before ICSID. The
South Centre, a think tank sponsored by 48 developing countries, has opposed
any changes within ICSID that would increase the cost of arbitration or further
alter the ‘‘consensual nature’’ of the investor-state arbitration process (South
Centre 2005). For all of these reasons, the ‘‘host’’ country is likely to enter into
BIT negotiations being opposed to delegation of dispute settlement authority to
ICSID. Instead, it should prefer ‘‘domestic delegation,’’ where it maintains some
ability to influence dispute settlement through its own institutions, or at a mini-
mum, can make the process murkier and thus increase the transaction costs for
foreign multinationals who pursue a dispute (Abbott and Snidal 2000:438).
Our approach acknowledges that the same country may feel differently toward
ICSID depending on whether it approaches the question as a capital-importing
or capital-exporting country. China is perhaps the best example here. In a 1995
BIT with Austria, Chinese negotiators perceived their position as the likely host
to foreign capital and refused to agree to any form of international arbitration
of disputes. In another BIT that year with Morocco, in which China would be
considered the likely capital-exporting state, it incorporated provisions for ICSID
arbitration into the treaty. Because China increasingly has seen itself as a source
of capital instead of solely a recipient, the Chinese government recently included
provisions for dispute settlement through ICSID into its 2003 model BIT.
A simple, unidimensional spatial model reflects these three important compo-
nents discussed above (see Figure 1). A home and host country pair of BIT sig-
natories may agree to any amount of delegation to ICSID in this unidimensional
space, ranging from an extreme of no delegation whatsoever (ICSID is not an
option for dispute settlement) to the other extreme of full delegation (ICSID is
the only option for dispute settlement). In Figure 1, the preferences of ideal
types of home and host governments are represented by ideal points and hM and
hS, respectively.
Figure 1 assumes a default scenario in which both governments are ideal types
in their preferences toward ICSID delegation (in the predicted direction) and
have equal bargaining power. In this illustration, the resulting amount of ICSID
delegation contained in the BIT is represented by arbitration clause A, which lies
at the midpoint of the distance between hM and hS. In instances of real-world
BIT negotiations, however, the location of A may shift in response to changes in
the preferences of either the home or host country leadership, or changes in the
relative bargaining power between them. In devising the hypotheses below, we
FIG 1. Ideal-Type Preferences with Equal Bargaining Power
assume that both negotiators are rational actors whose negotiating behavior is
responsive to domestic political and economic constraints and inducements, as
well as the unique bilateral context shared by the two sides.
Hypotheses on Legal Delegation to ICSID

Although we generally believe that home governments will prefer to include
recourse to ICSID in their BITs—and host governments will oppose such
efforts—a variety of factors could shift the preferences of leaders toward ICSID
arbitration and thus alter the content of their BIT.
Factors that Shift Home Government Preferences

The degree to which leaders within home governments will insist on delegation
of dispute settlement authority to ICSID should vary based on: (i) the strength
of domestic groups who advocate ICSID delegation, (ii) the quality of domestic
institutions in the host country partner, as well as (iii) the closeness of the two
countries’ existing bilateral relationship. Put differently, during BIT negotiations
the home government’s preferences for ICSID delegation (hM), as depicted in
Figure 1, may shift leftward or rightward depending on certain factors relevant
to each BIT.
The presence of domestic interests within the home country who support delegation
to ICSID constitutes the first factor that should affect the stance taken by home
governments in their BIT negotiations over dispute settlement provisions. Pro-
ICSID domestic interests, such as multinational firms and lawyers, can push the
home government to be even more insistent on including recourse to ICSID in
a BIT. Under such circumstances, we expect the home government’s preference
for ICSID delegation to intensify and to shift further to the right, as depicted by
hM¢ in Figure 2, and to result in greater delegation of dispute settlement author-
ity to ICSID in that country’s BITs, ceteris paribus (see A¢ in Figure 2).
This dynamic occurs in two situations. First, leaders of home countries with a
large presence of MNCs should have particularly strong incentives to include ICSID
in their investment treaties. As noted earlier, MNCs in the home country strongly
prefer to have ICSID as the primary option for settling future disputes with host
governments because this gives them direct access to international arbitration
and results in a judgment that has the force of domestic law (Baker 1999; Van-
develde 2005–2006). As a result, home-country leaders have strong incentives to
be responsive to these powerful interests to enhance their political standing.12
To measure the presence of multinationals in home countries, we utilize data
from Forbes magazine’s annual list of the world’s largest MNCs and create a mea-
sure of the percentage of the world’s largest multinationals headquartered in the
home country.13
12
For a recent example, see ‘‘US Companies Urge Investment Pacts with BRIC Nations.’’ The Guardian, Decem-
ber 4, 2007, accessed via http://www.bilaterals.org/article.php3?id_article = 10581 on September 10, 2008.
13
To standardize the Forbes lists across years during the period 1980–2002, in each year we identify all MNCs
that have revenues above the threshold of approximately $5 billion in constant 1980 US dollars. We then calculate
the percentage of such MNCs in each year that are from each country in our data set. For 2003 we use the Forbes
Global 100 and for 2004–2006 we use the Forbes Global 200 list. For years before 1980, we use the values from 1980
so as not to drop all early observations from our data set, although the inclusion or exclusion of the pre-1980 cases
does not affect our substantive conclusions.
FIG 2. Changes in Home Country Preferences with Equal Bargaining Power
Second, we expect leaders of home countries with strong domestic legal interests to
have particularly strong preferences to include legal dispute settlement through
ICSID in their bilateral treaties. On a political level, we expect there to be power-
ful legal interests (lawyers, international law firms, etc.) in home countries that
emphasize the rule of law who will want to enshrine the highest degree of delega-
tion in ICSID. Once again, home-country leaders have political incentives to act
in accordance with the wishes of these interests.14 To evaluate this argument
about the degree to which the home government externalizes the rule of law, we
rely primarily on the Political Risk Service’s (PRS) International Country Risk
Guide’s (ICRG) measure of ‘‘law and order’’ for the home government.15
The credibility of legal and political institutions within the host country may
also influence the intensity of the home government’s preferences for ICSID
delegation. When host institutions are ineffective or unpredictable, we expect
the home country to push even harder for the protection afforded by ICSID del-
egation, leading once again to a rightward shift in home preferences (hM¢) and
the delegation outcome (A¢) depicted in Figure 2. However, when these host
state institutions inspire greater confidence (for example, generate greater credi-
bility) among home governments and their MNCs, we expect home governments
to moderate their insistence on full delegation to ICSID. This alternative scen-
ario also is depicted in Figure 2. This time the home government preferences
will shift leftward (hM¢¢), reflecting less insistence on delegation to ICSID and
resulting in a BIT containing less delegation of dispute settlement authority to
ICSID (agreement point A¢¢ in Figure 2).
Three domestic conditions within the host state should generate greater credi-
bility among those in the home country and result in a weakening of home gov-
ernments’ preferences for delegation to ICSID. First, home governments will see
less need to rely on ICSID when the host country possesses greater respect for
the rule of law. In these situations, multinationals in the home country should
have greater confidence that any dispute can be settled swiftly and fairly through
local judicial remedies. To test this hypothesis, we include the PRS ⁄ ICRG mea-
sure of the prevalence of ‘‘law and order’’ in the host country. As a robustness
check, we also substitute alternate indicators of the quality of legal institutions in
the host country, including the ICRG measure of host state corruption, as well as
measures of the type of legal system in the host.16
A second situation in which the home government should be less insistent on
delegation to ICSID is when the host possesses stable and durable political institu-
tions. A major concern for investors is the temptation of host governments to
14
This relationship also is consistent with those who emphasize the interplay between domestic and interna-
tional norms of legal dispute resolution (for example, Keohane, Moravcsik, and Slaughter 2000) and those who link
the norms argument of the democratic peace to international third-party dispute resolution (for example, Dixon
1993).
15
The PRS ⁄ ICRG measure of law and order only covers the period from 1982 to 2006. Although only 10% of
BITs in our sample are signed before 1982, the exclusion of these cases would cause us to lose data on all BITs
from earlier time periods. Therefore, for all PRS ⁄ ICRG variables we extend values from 1982 to any earlier missing
years, although this decision does not affect the significance of any of our primary findings.
16
Data on the type of legal system is taken from Djankov, La Porta, and Lopez-De-Silanes (2003) and Powell
and Mitchell (2007). Some scholars argue that common law systems provide for better protection of property rights
(see La Porta, Lopez-De-Silanes, Shleifer, and Vishny 1998).
change the original deal as bargaining power changes once investment costs are
sunk (Vernon 1971). Home governments should be less worried about this hap-
pening when the host is more politically stable. When the host country exhibits
unchanging political institutions, home governments will have greater confi-
dence that the conditions under which their multinational firms initially
invest—regardless of the quality, openness or transparency of the host regime—-
will continue to persist over time. In these situations of host state continuity,
home governments will be less insistent on the inclusion of ICSID clauses in
BITs due to reduced worries about unforeseen political developments in the host
country that could threaten foreign investment. To evaluate this claim, we
include a measure of the durability of the host regime taken from the Polity IV
data set, which captures the number of years since the last major change in the
regime of the host state (Marshall and Jaggers 2005).
The third and final factor taps into the credibility of the host state’s political
institutions in a slightly different way. Host countries in which political constraints
on the executive are high should exhibit greater predictability in terms of behavior
on investment-related issues (Henisz 2000). When constraints on the executive
are high, it will be more difficult for the executive to change the course of eco-
nomic policy than it would be in the absence of such constraints. These con-
straints, then, reassure foreign investors and their governments who negotiate
BITs. Therefore, we include a measure of the degree to which there are checks
on the power of the executive in the host state. We rely primarily upon Henisz’s
(2002) ‘‘POLCON III’’ measure of political constraints on the executive, which
assesses the feasibility of policy change. However, we also substitute similar indi-
cators from other sources, including measures of ‘‘checks’’ on the executive
(from the World Bank’s Database of Political Institutions) and the measure of
‘‘executive constraints’’ taken from Polity IV.17
A final consideration, the closeness of ties with the host country, should also lead
home governments to be less insistent on full delegation to ICSID. Home gov-
ernments should be hesitant to press for a more legalistic and adversarial means
of resolving disputes in these situations, for fear of jeopardizing the ties or
appearing to coerce the other side. Furthermore, in such situations, the two
sides should be better equipped to settle investment disputes informally or
through other domestic legal or quasi-legal channels. When home and host
share colonial ties, the stronger home government will want to avoid the appear-
ance of bullying and instead should prefer to draw upon the commonality of
experiences and shared institutions to resolve differences rather than relying on
international bodies such as ICSID.18 In addition, home governments who share
formal alliance ties with the host country will prefer to keep any disputes out of
the international arena and to avoid jeopardizing their security relationship.19
Instead, they should be more inclined to resolve any investment disputes pri-
vately or informally due to their reliance on the ally, which means the host
should moderate its demands for full delegation of investment dispute settle-
ment authority to ICSID (see Figure 2).
Factors that affect Host Government Preferences

The logic regarding host government preferences is the reverse of that for home
governments. Leaders within host governments typically will oppose delegation
to ICSID, and those who are most concerned with sovereignty costs should be
17
See Beck, Clarke, Groff, Keefer, and Walsh (2001) and Marshall and Jaggers (2005).
18
Data on colonial relationships come from the Issue Correlates of War (ICOW) Project Colonial History data
set, version 0.4. Our primary measure of colonial ties captures whether either state was a former colony of the
other, or whether the two states had a common colonizer.
19
Data on alliance ties come from the Alliance Treaty Obligations and Provisions data set (Leeds, Ritter,
Mitchell, and Long 2002). Our indicator captures whether the home and host states possess any type of alliance tie.
FIG 3. Changes in Host Preferences with Equal Bargaining Power
particularly opposed to ICSID delegation. On the other hand, certain economic

conditions and strategic calculations may reduce the hostility of some host coun-
try leaders to the inclusion of ICSID clauses.
Earlier we noted that sovereignty costs represent the single biggest potential
cost of delegation of dispute settlement authority to ICSID. Those host govern-
ments that are most sensitive to sovereignty costs should be most hostile to the
inclusion of ICSID clauses in their BITs. This impact of sovereignty costs is illus-
trated in Figure 3, where additional worries about sovereignty costs shift a typical
host government’s preferences even further to the left (hS¢). This hardening of
host government opposition to ICSID will lead, ceteris paribus, to dispute settle-
ment provisions within BITs that contain less delegation to ICSID (A¢).
Kahler (2000a), among others, speculates that ‘‘postcolonial syndrome’’ pre-
vents recently independent (and former colonial) states from initially sacrificing
much of their newfound autonomy. Therefore, among host country BIT signato-
ries, those countries that recently have become independent should be most sensitive
to sovereignty costs. They should be more hesitant to transfer authority for
important decisions, such as those related to economic sovereignty, to an inter-
national legal institution like ICSID. Therefore, we include in our multivariate
test an indicator for whether the host country became independent within the past
ten years. Data on dates of independence are taken from the ICOW Colonial His-
tory data set.
In contrast, because of their unfavorable economic position, certain host govern-
ments will view some delegation of authority to ICSID as being worth the sover-
eignty costs. In particular, governments who desperately want to attract FDI or to
satisfy international actors should demonstrate a softening of opposition to legal
delegation, as indicated by an inward shift in preferences to hS¢¢. This shift in
host preferences, then, should result in a dispute settlement provision that dele-
gates more dispute settlement authority to ICSID (A¢¢ in Figure 3).
One economic situation in which host governments will be more willing to
accept ICSID arbitration clauses is when they experience low levels of economic
growth. When host countries face a period of economic stagnation or decline,
they will be particularly eager to obtain the benefits of increased access to for-
eign capital and thus should more readily agree to greater delegation of dispute
settlement authority to ICSID, despite the potential costs. As discussed earlier,
host governments who delegate at least some dispute settlement authority to
ICSID send more credible signals of fair treatment and equality before the law
to foreign investors, in an attempt to generate more inward FDI. To test this
argument we include a measure of the host state’s rate of GDP per capita growth
from the previous year to the current year.
The constraints imposed by a host country’s international economic position
also should exert a similar effect. When a host government is dependent upon
access to global markets and capital from abroad, it needs to send signals of good
governance and to conform to the wishes of major international economic actors
such as the International Monetary Fund, World Bank, regional development
banks, and economically powerful states. As a result, it should be more likely to
agree to the inclusion of ICSID clauses in its BITs, in line with the preferences of
these international actors. Two related yet distinct components of the host state’s
international economic position are relevant. First, we expect host governments

that are most trade dependent to be less opposed to delegation to ICSID. These gov-
ernments will be more conciliatory toward ICSID clauses not only because they
rely upon export markets to generate income, but also because attracting vertical
FDI is an integral part of the country’s export-led development strategy (see
Barba Navaretti and Venables 2004). We include a measure of the host state’s
exports as a percentage of GDP to test this hypothesis. Second, we expect host
governments that rely on foreign aid to be more willing to accept ICSID clauses in
their BITs given their economic dependence upon international economic actors.
Because these governments are likely to depend on such actors for future capital
inflows or help with debt relief, they will have a greater need to send reinforcing
signals to the international community. To test this argument we include as our
primary measure the amount of inflows the host receives from the World Bank in
the form of International Development Association (IDA) credits and Interna-
tional Bank for Reconstruction and Development (IBRD) loans, expressed as a
percentage of GDP. Data for both indicators in this section are taken from the
World Bank’s (2007) WDI.
Finally, some host country leaders will be less hostile to ICSID clauses because
they would like to tie the hands of their successors by locking in the delegation of
dispute settlement authority to ICSID. By doing so, they reduce the ability of
future, expropriation-minded governments to effectively engage in takings. The
use of international legalization as a hands-tying device has been noted by Gold-
stein et al. (2000) in the general context, and by Ginsburg (2005) in the precise
context of commitment to ICSID arbitration. All else equal, we posit that right-
wing leaders in host states should be most likely to engage in this type of hand-
tying behavior. Not only are their preferences for an open economy and inward
investment likely to be stronger, but the potential for expropriation and viola-
tions of the terms of BITs should be greater from their left-wing opponents.
Therefore, we include a variable that captures whether the governing regime in
the host state is of a right-wing orientation. This indicator is taken from the
World Bank’s Database of Political Institutions.20
Relative Bargaining Power between Home and Host Governments

The discussion to this point has centered on the preferences of home and host
governments toward ICSID clauses in BITs, and the factors that might lead to a
change in ICSID delegation by shifting the preferences of either or both sides.
Throughout these discussions we have assumed that the two sides bargain on
equal terms given their preferences on the issue of ICSID delegation, and that
the resulting investor-state dispute settlement clause in the BIT will reflect an
equal compromise between the two sides. That is, in Figures 1, 2, and 3 we
assume the agreement reached on the extent of delegation to ICSID will lie at
the midpoint between the preferences of both governments [A = (hS + hM) ⁄ 2].
In the world of international economic relations, however, asymmetries in bar-
gaining power often play a major role in negotiated outcomes and parties rarely
‘‘split the difference.’’ Therefore, the relative bargaining power between the home
and host becomes an important final determinant of delegation to ICSID within
a BIT.
Given the inherent asymmetry in the BIT bargaining process—with a powerful
home country and a relatively powerless host country—we expect most BITs to
reflect the relatively greater power of the home country and to include signifi-
cant delegation to ICSID in their dispute settlement clauses. Figure 4 illustrates a
typical situation in which both home and host have the ideal-type references
20
Beck et al. (2001). We take the original three-category L-C-R variable and recode it with a value of 1 for ‘‘R’’
governments, and a value of 0 otherwise.
FIG 4. Ideal-Type Preferences with 90/10 Bargaining Advantage from Home
toward ICSID delegation, as depicted originally in Figure 1. In this case, how-

ever, the home country has a significant advantage in relative bargaining power.
As bargaining power shifts from a situation of relative parity to one of a 90 ⁄ 10
advantage for the home country, for instance, the level of delegation to ICSID
also increases significantly. Now the original agreement on delegation to ICSID
(A) shifts rightward to an agreement point (A¢) that is 9 ⁄ 10 of the distance from
hS to hM.
More generally, even when holding the preferences of home and host con-
stant, any shift in bargaining power can change the resulting level of ICSID dele-
gation considerably. As noted earlier, in most cases the bargaining power
dynamics will work to the advantage of the home government and will result in a
prominent role for ICSID in investment treaties, either as the sole option for
dispute settlement or as one of multiple options for dispute settlement. Because
power asymmetries often favor the home country, significant delegation to ICSID
can occur even when the host state possesses strong preferences against such as
action.21 However, there are conditions in which host states may possess greater
bargaining leverage. For example, if the host state has a relatively sizeable econ-
omy and therefore can deliver access to important markets, it may be able to bar-
gain on more even terms with home-country governments. Similarly, if one
conceives of power in broader terms, host states that possess natural resources,
other strategic assets, or substantial military capabilities also may be able to resist
significant legal delegation to ICSID.
Because power can be conceptualized in different ways, we consider several
possible measures of the relative power between the home and host countries.
Due to concerns with multicollinearity, however, we only include one indicator
of power in the model at any given time. Our primary measure, the ratio of
home-state aggregate GDP to host-state aggregate GDP, captures the relative eco-
nomic power of the home versus host countries. Operationalizing power with an aggre-
gate measure of economic power is appropriate given our focus on investment
treaties and the fact that overall economic resources are the most appropriate
source of leverage in this issue area.22 We also consider various other economic-
based measures of power, as well as two different measures of relative military
power to capture power fungibility in a broader way.23
Cases, Data, and Estimation

We now test the validity of the above hypotheses through a series of multivariate
tests intended to predict whether a pair of states includes provisions for ICSID
arbitration in a BIT. We analyze dispute resolution clauses for 1,473 BITs
21
Vandevelde (1993:691) singles out the US BIT with Argentina as one such case. ‘‘The negotiation of a BIT
with Argentina that contained an investor-to-State dispute provision was a considerable accomplishment, given that
Argentina was a longstanding adherent to the Calvo Doctrine and indeed the native land of Dr. Calvo himself. Ulti-
mately, Argentina agreed to the inclusion of an investor-to-State dispute provision without any substantive conces-
sions from the United States.’’
22
Furthermore, by examining total GDP we avoid conflating our measure of bargaining power with our mecha-
nism for defining ‘‘home’’ and ‘‘host’’ states, which is GDP per capita.
23
We consider the ratio of the two states’ aggregate national material capabilities as well as the ratio of their
respective military expenditures. These data are assembled from the Correlates of War National Material Capabili-
ties data set, v. 3.0 (Singer, Bremer, and Stuckey 1972).
TABLE 1. Descriptive Statistics
Variable Observation Mean SD Min Max
Presence of MNCs in home 1,467 0.035 0.059 0 0.405

Rule of law in home 1,429 5.14 1.03 1 6
Rule of law in host 1,288 3.66 1.18 0 6
Durability of host regime 1,416 13.51 15.58 0 95
Political constraints on executive in host 1,435 0.243 0.218 0 0.69
Alliance ties 1,467 0.279 0.449 0 1
Colonial ties 1,467 0.141 0.348 0 1
Host recently independent 1,467 0.211 0.408 0 1
GDP growth in host 1,389 1.48 6.79 )42 30
Foreign aid ⁄ GDP in host 1,237 0.077 0.12 0 1.34
Exports ⁄ GDP in host 1,393 33.85 19.35 1 137
Right-wing executive in host 1,366 0.255 0.436 0 1
Relative economic power 1,364 0.777 0.281 0.001 0.999
concluded between 1966 and the present.24 Our collection of BIT treaty texts
includes all treaties available for download via the UNCTAD Investment Instru-
ments Online archive—the primary entity that systematically collects and pub-
lishes the text of BITs—to which we supplement other treaties assembled from
country-specific sources.25 Although many treaties are available in English, we
also translate and code all of the treaties that are only available in non-English
languages (Arabic, French, German, Italian, Spanish, Portuguese, and Russian).
Table 1 presents descriptive statistics across these coded treaties for all variables
of interest.
We code each of the 1,473 BITs in our data set according to the degree of del-
egation of dispute settlement authority to ICSID. Our ICSID dependent variable
is coded 0 through 2, with 0 being no mention of ICSID in the treaty (no dele-
gation), 1 representing ICSID as one of at least two options for international
arbitration (some delegation), and 2 meaning ICSID is identified as the only
venue for international arbitration (full delegation). Table 2 identifies the coun-
tries that average the highest and lowest levels of legal delegation to ICSID on
this 0–2 scale across their BITs in our sample (with a minimum of five coded
treaties on file). A wide range of developing countries spanning Africa, Asia,
Central America, and the Middle East include the greatest levels of delegation to
ICSID in their BITs. Most of their BIT partners are OECD countries such as
France, Portugal, and the United Kingdom, which appear just below the afore-
mentioned group on the list of countries with the highest average delegation to
ICSID. In fact, nearly all OECD countries rank in the upper quartile on average
24
Although some earlier BITs exist, we begin our analysis with treaties signed after 1965 because ICSID was not
established until 1966. It should be noted, however, than only a handful of BITs were signed before 1966.
25
We were extremely diligent in our efforts to identify and code the text of as many BITs as possible. The
UNCTAD database on international investment agreements contains by far the most comprehensive collection of
treaty texts. We also utilized state-level archives from governments such as the United States’ (http://www.tcc.
export.gov/) to supplement the UNCTAD collection. One potential concern is that our collection of treaties misses
a more notable percentage of BITs involving developing countries. This concern is mollified by the fact that
UNCTAD (our primary source) has a privileged position among developing countries and was likely to receive
copies of BITs concluded by pairs of non-OECD countries. In total, we were able to identify and code the text of
nearly 60% (1,473) of the 2,599 BITs in existence at the end of 2006. As a further check, we also compared the
BITs for which we had the text of the treaty with those for which we did not have the text, particularly with regard
to potential differences in variables of interest across those samples. For the overwhelming majority of variables
used in our analyses, the differences across samples are neither statistically nor substantively significant. One vari-
able, the percentage of worldwide multinationals located in the home country, differed notably across the coded
and uncoded samples (the value of the variable was greater for the coded treaties). Therefore, any conclusions
drawn regarding this variable should keep this somewhat unavoidable dynamic in mind.
TABLE 2. Average Delegation to ICSID in BITs, by Country
Highest Delegation to ICSID
Namibia 2.00
Sri Lanka 1.71
Saudi Arabia 1.64
Nigeria 1.63
Zimbabwe 1.55
Nicaragua 1.55
Indonesia 1.54
Note: Eight additional countries are ranked b ⁄ w Indonesia and France
France 1.42
Portugal 1.41
United Kingdom 1.40
Lowest Delegation to ICSID
Hong Kong 0
Taiwan 0
Russia 0.16
Cuba 0.17
Iran 0.21
Malta 0.30
Syria 0.50
Comoros 0.50
China 0.51
delegation (between 1.1 and 1.4), which is consistent with our theoretical frame-
work. The list of low-delegation countries at the bottom of Table 2 is quite
different. Among the notable countries in this group are Russia, with a very low
ICSID delegation value of 0.16, and China, which historically has maintained low
average delegation to ICSID.
Because we believe that our ICSID delegation dependent variable, or DV, is
truly ‘‘ordered,’’ we estimate an ordered probit model utilizing this three-
category specification of the ICSID variable in our primary empirical tests. Never-
theless, we also consider various alternate formulations of the dependent
variables and associated estimators (multinomial probit, binary probit, etc.) to
check for robustness of findings. In addition, we also explore empirical models
that account for potential sample selection bias and non-independence of
treaties across home countries. Finally, for nearly all estimated relationships, we
also substitute one or more additional measures of the independent variable into
the model to assess the robustness of findings.
Empirical Findings
The findings from our primary ordered probit model of ICSID delegation, pre-
sented in Table 3, reveal that differences in dispute settlement clauses within
BITs are systematic and largely reflect our bargaining-based framework. The pref-
erences of both home and host governments affect the degree of delegation to
ICSID, as does the relative bargaining power between the signatories. More spe-
cifically, domestic interests within the home country and existing ties with the
host country both affect ICSID delegation, but surprisingly, home governments
are no more insistent on recourse to ICSID when the host country possesses
lower-quality legal and political institutions. Host countries that are recently inde-
pendent appear to resist ICSID delegation more strongly, but those hosts that
are constrained by their ties to the global economy are more likely to accept
ICSID. Finally, the relative power of the two BIT signatories also has a sizeable
TABLE 3. Ordered Probit Results for the Decision to Delegate Dispute Settlement to ICSID
Coefficient Robust SE
Factors that shift home government preferences

Domestic interests in home country
Presence of MNCs in home (+) 1.65 (0.712)***
Rule of law in home (+) 0.086 (0.041)**
Legal and political institutions in host country
Rule of law in host ()) 0.007 (0.039)
Durability of host regime ()) )0.002 (0.003)
Political constraints on executive in host ()) 0.400 (0.192)
Closeness of ties between home and host
Alliance ties ()) )0.113 (0.081)*
Colonial ties ()) )0.152 (0.114)*
Factors that shift host government preferences
Sovereignty costs for host country
Host recently independent ()) )0.250 (0.104)***
Unfavorable economic position of host country
Economic growth ()) 0.0002 (0.005)
Trade dependence (+) 0.0047 (0.0022)**
Reliance on foreign aid (+) 0.726 (0.391)**
‘‘Tying hands’’ motivations
Right-wing government in host (+) )0.017 (0.084)
Relative bargaining power between home and host
Ratio of home to host economic power 0.675 (0.156)***
(Notes. N = 1,032. Bilateral Investment Treaties; Wald v2 test (16 df) = 79.99 (.00); Hypothesized effects in parenthe-
ses, *p < .10, **p < .05, and ***p < .01, one-tailed.)
impact on the amount of delegation to ICSID we see in the treaty. We next

consider each of these findings in greater detail. When discussing important
findings, to gauge substantive effects we also present and discuss a series of pre-
dicted probability estimates (see Table 4).26
Turning first to the home country, both variables for domestic political inter-
ests within the home country exhibit the predicted relationship and lead to
greater delegation to ICSID (see Table 3). Home countries with many of the
world’s largest MNCs are more likely to include ICSID arbitration clauses in their
bilateral treaties. In substantive terms, a country with 20% of the world’s largest
MNCs, such as Germany, will include full delegation to ICSID (DV = 2) in nearly
half of its BITs and at least some delegation (DV = 1 or 2) in more than 95% of
its BITs (see Table 4). Furthermore, when a country is home to nearly 40% of
the world’s largest MNCs, such as the United States in recent years, the probabil-
ity of at least some ICSID delegation reaches nearly 98%.
Strong legal interests within the home country also lead to greater delegation
to ICSID to settle investment disputes. In substantive terms, those home coun-
tries with domestic interests that most strongly embrace legalization (an ICRG
law and order score of 6) are about 50% more likely to include ICSID as the only
option for dispute settlement, when compared with those regimes with much
weaker legal interests at home (a score of 2), and are highly unlikely to agree to
no delegation whatsoever to ICSID (see Table 4).
Surprisingly, the three variables that reflect the quality of domestic institutions
in the host country—and therefore the credibility of commitment they can
convey to foreign governments and investors—do not impact the likelihood of
26
These estimates are generated in the statistical software package, Spost, (Long and Freese 2005) and
examine the impact of changes in a variable of interest while holding all variables of interest fixed, typically at their
median values.
TABLE 4. Predicted Probability of Delegation to ICSID Due to Changes in Explanatory Variables
Predicted Probability of:
No Some Full
Delegation Delegation Delegation
to ICSID to ICSID to ICSID
(DV = 0) (DV = 1) (DV = 2)
MNC presence in home country

None of world’s largest MNCs 9.0% 58.1% 33.0%
20% of world’s largest MNCs 4.7% 49.7% 45.6%
Strength of law and order in home country
Weak 13.9% 61.9% 24.2%
Strong 7.6% 56.2% 36.1%
Alliance ties
No alliance ties 9.0% 58.1% 33.0%
Alliance ties 10.9% 60.1% 29.0%
Colonial ties
No colonial ties 9.0% 58.1% 33.0%
Colonial ties 11.7% 60.1% 27.7%
Host country recent independence
Independence gained more than 10 years ago 9.0% 58.1% 33.0%
Independence gained less than 10 years ago 13.7% 61.8% 24.5%
Host country trade dependence
Exports are 10% of GDP 10.3% 59.6% 30.0%
Exports are 90% of GDP 5.1% 50.9% 44.0%
Host country reliance on foreign aid
No WB assistance 9.3% 58.4% 32.3%
WB assistance is 50% of GDP 4.6% 49.3% 46.1%
Ratio of home to host bargaining power
Home GDP is one third of host GDP 17.9% 62.8% 19.4%
Home GDP is 20 times host GDP 8.2% 57.0% 34.8%
(Notes. Effects are generated using Spost (Long and Freese 2005). All variables except for the variable of interest
are held constant at median values. For nonbinary variables, we examine changes in the explanatory variable from
substantively meaningful values between the 1st and 5th percentiles to substantively meaningful values between the
95th and 99th percentiles.)
delegation to ICSID in the manner predicted. The null results for these three
variables hold even when we consider their effects within highly relevant subsam-
ples.27 Because the primary alternative to investment arbitration through ICSID
(or another international body) is to have the dispute settled within the domes-
tic courts of the host state, we believed that home governments would prefer to
substitute dispute settlement through ICSID in place of dispute settlement within
a host state with dubious legal institutions. But no such evidence is found. Fur-
thermore, we find no evidence of the hypothesized negative relationship when
we substitute measures for the lack of corruption in the host state, the level of
democracy in the host, as well as two separate indicators of whether the host
country has a common law system.28 We also find little evidence to suggest that
home governments push more strongly for ICSID clauses in their BITs with host
governments that are either unstable or unconstrained. The coefficient on
27
We examine whether these variables might matter more in those BITs with the greatest power asymmetries.
However, even when we estimate our primary model across the highest-asymmetry BITs, defining high asymmetry in
multiple ways, none of the three variables ever exhibits the hypothesized effect on ICSID delegation.
28
All four of these alternate indicators remain positively signed, contrary to our predictions, although only the
common law system measure taken from Djankov et al. (2003) is statistically significant at conventional levels.
The use of this final measure, however, results in the loss of several hundred cases, and thus we attach relatively lit-
tle significance to it.
durability of the host regime exhibits the predicted negative sign but is not statisti-
cally significant at conventional levels. We substitute a number of alternative
measures of regime stability (all taken from the Database of Political Institu-
tions), and though most are not statistically significant, we find some evidence
that delegation to ICSID seems more likely when the ruling party or ruling
regime in the host has been in power for a long time.29 The last of the host
political institutions variables pushes even further in this anomalous direction, as
the political constraints on executive in host variable is positive and marginally signifi-
cant. In other words, the likelihood of ICSID delegation is actually higher when
the host government faces greater constraints on its actions as opposed to fewer
constraints. To further probe this anomalous finding, we substitute additional
indicators of political constraints taken from alternate sources and the coeffi-
cient estimates are typically weakly positive.30
What might explain these three unsupported, and at times anomalous, find-
ings? One explanation for these positive-leaning relationships between ICSID
delegation and the quality and predictability of host institutions can be traced to
the incentives facing host state leaders. Leaders who govern in relatively corrup-
tion-free environments, where the rule of law prevails and political institutions
constrain the power of executives, have few incentives to resist ICSID delegation.
For these executives, there is no reason to fight for domestic dispute resolution
over delegation to ICSID because in neither case can they influence the dispute
outcome. This explanation also is consistent with our finding of a lack of a rela-
tionship between right-wing host governments and ICSID delegation (see
Table 3). Once again, it is not so much the ideology of the host executive that
matters, but rather the broader political and legal environment in which the
executive operates that is important. A second explanation shifts the focus back
to home governments. Perhaps home governments simply do not care what the
political situation in the host looks like but instead unconditionally push for
ICSID delegation. According to this more pessimistic interpretation, home
governments are not swayed by the presence of ‘‘better’’ legal institutions or a
more stable political environment in the host, and host governments cannot
improve their BIT outcomes by demonstrating a greater commitment to the rule
of law or political transparency.
Although home governments do not moderate their preferences for ICSID
delegation based on the domestic institutions in the host, we do find consistent
evidence that home governments are more lenient in their attitudes toward
ICSID delegation in BITs with allies and former colonies. The coefficients on
the alliance ties and colonial ties variables in Table 3 are both negative and statisti-
cally significant, as predicted. The substantive effect of each relationship is rela-
tively modest, however, as alliance ties and colonial relationships lead to only
12% and 16% reductions, respectively, in the predicted probability estimates for
full delegation to ICSID (see Table 4). Nevertheless, these findings do suggest
that home governments are willing to moderate their demands for ICSID delega-
tion in particular situations, namely when they possess historical or strategic link-
ages with their BIT partner.
Switching to host preferences toward ICSID clauses, recently independent host
countries appear more likely to resist the delegation of dispute settlement
authority to ICSID due to concerns with sovereignty costs. Countries that have
gained independence in the past 10 years are less likely to include ICSID
29
Specifically, the coefficients on variables which capture the chief executive’s tenure in office (yrsoffc) and the
length of time the country’s system of government has been in place (tensys) are both positive and statistically signif-
icant at the p < .01 level.
30
The indicators for checks on the executive and executive constraints, from the Database of Political Institu-
tions and Polity IV, respectively, also are positive but not statistically significant.
delegation, and this finding is statistically significant and robust.31 The substan-
tive effects of recent host independence on ICSID delegation are notable, too.
When the host has gained its independence within the past 10 years, the likeli-
hood of no delegation to ICSID increases by more than 50% and the probability
of full delegation to ICSID drops by nearly one third (see Table 4).
Although poor domestic economic conditions in the host do not lead to
greater host government acceptance of ICSID clauses (the coefficient on the host
economic growth variable is close to zero and not statistically significant), a host
country’s unfavorable international economic position strongly influences its gov-
ernment’s willingness to accept delegation to ICSID.32 First, host countries that
are more reliant on international trade are more likely to consent to greater del-
egation to ICSID (see Table 3).33 Regimes that exhibit high trade dependence
(90% of GDP) are about 50% more likely to agree to full delegation to ICSID
when compared with regimes with low export dependence (10% of GDP) (see
Table 4). Second, host states that depend upon foreign aid from actors such as
the World Bank are more willing to absorb the sovereignty costs associated with
settling disputes through ICSID. Governments for whom World Bank (IBRD ⁄
IDA) assistance is half of GDP are nearly 45% more likely to consent to full dele-
gation to ICSID than those who receive no World Bank assistance (Table 4). In
turn, governments who are in a strong international position (no World Bank
assistance) are more than twice as likely to resist any delegation to ICSID (DV =
0) when compared with heavily reliant governments (see Table 4). This positive
relationship between external financial assistance to the host and legal delega-
tion to ICSID also holds for a range of alternate indicators.34 For those particular
host regimes that exhibit both high export dependence and heavy reliance on
World Bank assistance, the likelihood of total delegation to ICSID reaches nearly
58%, whereas the likelihood of no delegation to ICSID drops to just above 2%.
In sum, host regimes that are highly dependent upon the global economy are
almost certain to include ICSID in their BITs.
The final and perhaps most notable finding is that the relative bargaining
power of the two states, measured in a variety of ways, is a consistently strong
predictor of whether ICSID provisions are included in a BIT. Our primary mea-
sure of relative economic power, the ratio of home to host GDP, is positive and
statistically significant at the 99% level of confidence (see Table 3). Various
other measures of the relative economic power of the two signatories, such as
per capita GDP ratio, raw differences in GDP, or diminishing returns to large dif-
ferences (that is, logged values of various indicators) produce similar results. Fur-
thermore, the two indicators based on ratios of overall military expenditures and
national material capabilities also are strong predictors of ICSID delega-
tion—each is positive and highly statistically significant when substituted for rela-
tive economic power.
Our general conclusion is that power—conceptualized in any way—is a primary
determinant of whether ICSID provisions are specified in a BIT. Home govern-
ments typically are able to achieve at least some delegation in BITs (see Table 4),
but their ability to achieve full delegation to ICSID increases dramatically—by
31
Using the same ICOW Colonial History Data, the 15-year window for recent independence and count of
years since independence are both significant at the p < .01 level, while the 5-year window for recent independence
is significant at p < .05.
32
We also considered several inflation-based and unemployment-based indicators of the host state’s domestic
economic position, none of which approach statistical significance.
33
Although we believe export dependence is the most relevant concept, we obtain similar findings when we
substitute import dependence and overall trade dependence [(export + imports) ⁄ GDP].
34
Other WDI-based indicators, such as total multilateral debt, debt as a percentage of Gross National Income
(GNI), and aid as a percentage of GNI, also are positive and statistically significant, as are measures of inward FDI
stock and inward FDI stock as a percentage of GDP (both from UNCTAD 2007a).
nearly 80%—when they hold a substantial (20 to 1) bargaining advantage over the
host government. However, those more powerful host governments are better able
to resist delegation to ICSID. For instance, when the relative economic power of
the home and host countries shifts from the aforementioned situation of
home-state dominance to one of moderate advantage for the host state (its GDP is
three times larger than the home country), the predicted likelihood of no delega-
tion to ICSID more than doubles, from 8.2% to 17.9% (see Table 4).
Sensitivity Checks
Our first sensitivity check examines the potential for sample selection bias to
affect our findings regarding delegation to ICSID within BITs. Specifically, it is
possible that some of the relationships we observe in predicting ICSID delega-
tion could be affected by the decision of whether or not to sign a BIT in the first
place; thus the effects of variables that predict both whether to sign a BIT and
the amount of ICSID delegation within that BIT need to be disentangled. To do
so, we estimate an ordered probit model with sample selection.35 We first iden-
tify and then order all pairs of countries that could have signed a BIT but did
not do so. This leads to an expanded data set with 15,157 non-BIT pairings.36
We include all explanatory variables (those in Table 3) in both the outcome
(delegation to ICSID) and selection (BIT signing) equations. To the initial BIT
signing equation we add four exogenous variables that are expected to affect the
decision to negotiate and sign a BIT: whether the (potential) home and host
countries have embassies in one another’s territory, the geographic distance
between home and host, home democracy, and host democracy.37 Although the
findings for initial BIT signing are substantively interesting,38 our primary con-
cern here is with the estimated results for ICSID delegation in the second stage.
The estimated findings for ICSID delegation from the sample selection model
allay our concerns about sample selection bias. First and foremost, the estimate
of rho, the correlation between standard errors across the two stages, is not statis-
tically significant, which suggests that we can treat the ICSID delegation decision
as independent from the decision to sign a BIT. Second, even if we engage the
findings from the sample selection model, in the outcome (ICSID delegation)
equation five of the eight primary independent variables (those that were statisti-
cally significant in Table 3) retain their signs and similar levels of statistical sig-
nificance, whereas three variables (alliance ties, foreign aid dependence, export
dependence) retain their signs but fall just short of conventional levels of statistical
significance. Furthermore, all hypothesized relationships that we rejected earlier
continue to receive no empirical support, even after potential selection effects
are taken into account.
We also consider several other plausible estimators. Although we believe
ordered probit is the appropriate and most efficient estimator given the nature
35
This model is estimated in LIMDEP 9.0.
36
To assemble data on these non-BIT cases, we randomly assign a year to each new non-BIT observation, with
the random assignment of years weighed by the percentage of global BITs that actually were signed in each year.
37
We identified a wide range of variables that should affect BIT signing, some of which had been used in previ-
ous studies (Elkins et al. 2006). Many of these variables also were endogenous to ICSID delegation or already were
included in our specification. Four variables emerged as the strongest exogenous predictors of BIT signing: embas-
sies and home and host democracy are positive predictors of BIT signing, while distance is negatively related to BIT
signing. The presence of diplomatic relations (embassies) is by far that strongest predictor of BIT signing across all
exogenous and endogenous regressors in the model.
38
To provide a brief summary of results for the selection stage, home and host law and order, host durability and
lack of political constraints, and large bargaining power asymmetries are strong positive predictors of BIT signing, and
host recent independence and host economic growth are weak positive predictors. In contrast, hosts who are highly depen-
dent on foreign aid or trade are much less likely to sign BITs (and when they do, they must delegate dispute settle-
ment authority to ICSID).
of our dependent variable, we also estimate the same multivariate model specifi-
cation from Table 3 using both multinomial probit and binary probit.39 Six of
the eight primary relationships identified in Table 3 remain statistically signifi-
cant in the predicted direction when we compare estimates for exclusive ICSID
delegation (DV = 2) with no delegation (DV = 0) in the multinomial probit
model.40 When we estimate the binary probit model, six of the eight original
relationships remain statistically significant in the predicted direction.41
Because BITs involving the same home country might be affected by that
country’s consistent preferences for ICSID delegation, as enshrined in a model
BIT, we also estimate a multilevel model that accounts for the potential non-
independence of BITs involving the same home country. Nesting BITs within
home countries (and their model BITs) is an intriguing way to analyze BIT out-
comes, yet it is an imperfect match due to the heavily unbalanced number of
BITs nested within particular home countries, the lack of model BITs for some
home countries, and the overall challenges of identifying a clear ‘‘home’’ coun-
try. Nevertheless, our findings from a simple two-level model reveal consistent
support for our originally estimated relationships. All eight relationships retain
their previous, hypothesized signs and six of the eight remain statistically signifi-
cant at an equal or greater degree of confidence than before.
Other sensitivity checks explore for potential problems related to multicollin-
earity, time effects, and missing data, none of which ultimately casts doubt upon
the validity of our findings. We first estimate a series of auxiliary regressions
using each of the independent variables in Table 3, and conclude that multicol-
linearity is not a significant problem. The largest r-squared value for any of these
auxiliary regressions is .26 and no two explanatory variables in our primary
model exhibit a bivariate correlation of greater than .35. Next we add a series of
controls for time—decade dummies and also 5-year period dummies—into the
original model from Table 3. Across all of these models with time controls, all
eight primary findings retain their original signs and levels of statistical signifi-
cance. Finally, approximately 20–30% of the BITs for which we code dispute set-
tlement provisions are lost in the estimation of our primary model due to
missing data. Although this is a relatively modest percentage given the temporal
domain and the cross-section of countries we analyze, as a precautionary measure
we also pursue our primary model specification in a variety of alternate ways,
such as deleting certain variables, estimating the model for unique regions and
time periods, and utilizing linear interpolation of certain missing values. Across
all of these additional checks we fail to find any consistent evidence that our pri-
mary findings are affected by list-wise deletion of cases.
Conclusions and Implications

Our starting point for this paper is the observation that BITs exhibit consider-
able variation in terms of dispute settlement provisions, which lies in stark con-
trast to the pervasive assumption in the literature. Our original data collection
efforts lead us to reject the notion that governments simply adopt the same
model BIT with all countries, and our analyses confirm that the negotiation of a
BIT is a complex, purposeful endeavor. We turn to a simple bargaining frame-
work to explain variation across BITs, and our findings provide strong support
39
To estimate the binary model, we collapse the three-category ICSID clause dependent variable coding to two
categories, with the 0 and 1 values (no delegation to ICSID, some delegation to ICSID) collapsed into a single ‘‘0’’
category, and the original 2 value (full delegation to ICSID) coded as ‘‘1.’’
40
The coefficient for host recently independent is marginally significant in the predicted direction and the coeffi-
cient for Alliance Ties maintains the predicted sign but is not statistically significant.
41
The remaining two relationships (for colonial ties and host reliance on foreign aid) remain correctly signed but
do not reach conventional levels of statistical significance.
for the validity of this framework. Our identification of variation across BITs,
coupled with a systematic explanation for this variation and an emphasis on BIT
negotiations as a process, should inform future scholarship on the signing of
BITs as well as the impact of BITs on FDI.
One theme that emerges from our findings is that domestic political factors
within home countries help to explain treaty variation, but domestic factors
within host states do not. Home governments possess strong general preferences
for ICSID delegation, and these preferences intensify when a home country con-
tains a sizeable number of outward-oriented firms and as well as domestic groups
who advance a strong commitment to the rule of law. In contrast, we find no evi-
dence that right-wing host governments agree to ICSID delegation for hand-
tying, domestic political reasons. Additionally, we see no attempt to circumvent
the host’s poor domestic legal institutions, and delegation to ICSID is no more
likely when the host government is unstable or politically unconstrained. These
findings regarding the relative unimportance of political and legal institutions in
the host are notable given the focus in the FDI literature on the need for domes-
tic institutions to enhance the credibility of commitment to investors (for exam-
ple, Henisz 2000; Jensen 2003; Li and Resnick 2003) and previous emphasis on
the role of ICSID as a credibility-enhancing substitute for poor domestic institu-
tions (Ginsburg 2005).
A second theme is that power matters as an explanation for international arbi-
tration, but in ways that run contrary to the conventional wisdom on interna-
tional legalization. We find that more powerful countries prefer to delegate
authority for settling investment disputes to a third party like ICSID—and are
particularly likely to push for and achieve international legal delegation when
they possess the greatest bargaining power. Most accounts of international legal-
ization assume powerful states will be reluctant to embrace international law and
to rely on dispute settlement through international legal bodies. But because
powerful states expect their firms to be the aggrieved party in investment dis-
putes, these states prefer ICSID to other options for settling investment disputes.
Therefore, whether powerful states embrace legalization is contingent on the
nature of the issue area as well as their preferences toward stronger enforcement
of the rules that govern that issue area.
A final theme is that economic globalization exerts a strong influence on the
outcomes of BITs. Those developing countries that are at the mercy of interna-
tional economic actors who supply them with export markets and much-needed
capital are most likely to succumb to international dispute resolution clauses in
their BITs. Coupled with the finding about the importance of relative bargaining
power, we conclude that for many of the world’s weakest and most dependent
countries, the inclusion of ICSID clauses within BITs is not so much a choice as
it is a requirement. Ironically, past relationships with host governments—either
through colonial linkages or alliance ties which have their origins in the Cold
War—is one of the only ways that developing countries can escape from having
to delegate dispute settlement authority to ICSID.
The above relationships emerge due to our focus on variation in BITs, and in
this regard, our findings open new lines of research on investment cooperation.
Although we explore BIT variation along the dimension of dispute settlement,
there are other dimensions on which BITs vary that are worthy of future study,
including sectors excluded from investment protection, performance require-
ments, and legitimate reasons for expropriation. More research into the demand
for BITs should identify additional groups (other than the largest MNCs) who
want strong enforcement provisions in BITs. This would be particularly relevant
and important in the case of developing countries, where pro-FDI interests might
help to alleviate some of the concerns governments have with ICSID. BITs also
provide a unique laboratory for understanding country preferences toward FDI,
because for those countries with model BITs we have outright statements of a
country’s preferences, which often change over time. One also might consider
how the number of bargaining partners affects outcomes, as the same countries
have often signed both bilateral and multilateral investment agreements (such as
the Energy Charter Treaty and various preferential trade agreements). All of
these important features of BITs can be used to better understand the actual
bargaining process between countries, and more complex portrayals of that bar-
gaining process should now be pursued.
The overall experience of states signing BITs and enforcing their terms
through ICSID also suggests a new way to think about international institutions
and multilateralism. One of the hallmarks of international investment has been
the repeated failure of attempts to establish multilateral rules. Yet through the
spread of BITs and the development of dispute settlement through ICSID, we
see the emergence of a type of regime to regulate foreign investment. This struc-
ture has been built from the bilateral level upward, through a series of treaties
that exhibit some consistency, yet allow particular provisions (that is, dispute set-
tlement) to be catered to the wishes of the two parties to each treaty. Whether
this combination of bilateral treaties with multilateral enforcement is ultimately
successful—and whether it might apply to other issue areas—remains to be seen.
But with ICSID increasing its caseload and the growing salience of its awards, it
is apparent that the decision to delegate dispute settlement authority to ICSID
has been an important one.
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Allee - Delegating Differnces - Bilateral Investment Treaties and Bargaining Over Dispute Resolution Provisions

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International Studies Quarterly (2010) 54, 1–26

Delegating Differences: Bilateral Investment

Bilateral investment treaties (BITs) have become the dominant source

2010 International Studies Association

Whether or not a BIT allows foreign investors to challenge a government’s

Legalization, Delegation, and ICSID Arbitration

constraining elements of BITs are their enforcement procedures, as reflected in

BIT Negotiations over Dispute Settlement Clauses

Third, home governments generally prefer to include recourse to ICSID in

governments of Ecuador, Bolivia, and Venezuela have begun to rescind their

FIG 1. Ideal-Type Preferences with Equal Bargaining Power

Hypotheses on Legal Delegation to ICSID

Factors that Shift Home Government Preferences

FIG 2. Changes in Home Country Preferences with Equal Bargaining Power

Factors that affect Host Government Preferences

FIG 3. Changes in Host Preferences with Equal Bargaining Power

particularly opposed to ICSID delegation. On the other hand, certain economic

international economic position are relevant. First, we expect host governments

Relative Bargaining Power between Home and Host Governments

FIG 4. Ideal-Type Preferences with 90/10 Bargaining Advantage from Home

toward ICSID delegation, as depicted originally in Figure 1. In this case, how-

Cases, Data, and Estimation

TABLE 1. Descriptive Statistics

Variable Observation Mean SD Min Max

Presence of MNCs in home 1,467 0.035 0.059 0 0.405

TABLE 2. Average Delegation to ICSID in BITs, by Country

Highest Delegation to ICSID

Lowest Delegation to ICSID

Factors that shift home government preferences

impact on the amount of delegation to ICSID we see in the treaty. We next

TABLE 4. Predicted Probability of Delegation to ICSID Due to Changes in Explanatory Variables

Predicted Probability of:

MNC presence in home country

Conclusions and Implications

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