Bounded Rationality and Economic Diplomacy

The Politics of Investment Treaties in Developing Countries

Nonfiction, Social & Cultural Studies, Political Science, International, International Relations, Business & Finance
Cover of the book Bounded Rationality and Economic Diplomacy by Lauge N. Skovgaard Poulsen, Cambridge University Press
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Author: Lauge N. Skovgaard Poulsen ISBN: 9781316430439
Publisher: Cambridge University Press Publication: August 21, 2015
Imprint: Cambridge University Press Language: English
Author: Lauge N. Skovgaard Poulsen
ISBN: 9781316430439
Publisher: Cambridge University Press
Publication: August 21, 2015
Imprint: Cambridge University Press
Language: English

Modern investment treaties give private arbitrators power to determine whether governments should pay compensation to foreign investors for a wide range of sovereign acts. In recent years, particularly developing countries have incurred significant liabilities from investment treaty arbitration, which begs the question why they signed the treaties in the first place. Through a comprehensive and timely analysis, this book shows that governments in developing countries typically overestimated the economic benefits of investment treaties and practically ignored their risks. Rooted in insights on bounded rationality from behavioural psychology and economics, the analysis highlights how policy-makers often relied on inferential shortcuts when assessing the implications of the treaties, which resulted in systematic deviations from fully rational behaviour. This not only sheds new light on one of the most controversial legal regimes underwriting economic globalization but also provides a novel theoretical account of the often irrational, yet predictable, nature of economic diplomacy.

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Modern investment treaties give private arbitrators power to determine whether governments should pay compensation to foreign investors for a wide range of sovereign acts. In recent years, particularly developing countries have incurred significant liabilities from investment treaty arbitration, which begs the question why they signed the treaties in the first place. Through a comprehensive and timely analysis, this book shows that governments in developing countries typically overestimated the economic benefits of investment treaties and practically ignored their risks. Rooted in insights on bounded rationality from behavioural psychology and economics, the analysis highlights how policy-makers often relied on inferential shortcuts when assessing the implications of the treaties, which resulted in systematic deviations from fully rational behaviour. This not only sheds new light on one of the most controversial legal regimes underwriting economic globalization but also provides a novel theoretical account of the often irrational, yet predictable, nature of economic diplomacy.

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