MJIEL Vol 7 Issue 3 2010 - Article 4

ABSTRACT: The paper attempts to demonstrate that considerations of efficiency should guide and assist – but not necessarily bind – arbitrators in the delicate operation of distinguishing regulatory powers from indirect expropriation. The distinction is crucial, as only the latter requires compensation.

From this perspective, the qualification of the host State’s act depends primarily on the economic analysis of the impact of the act, taking into account inter alia the costs for the investor, welfare gains, and socio-economic benefits.

It also argues that such an approach would have a positive effect on the conduct of both the foreign investor and the host State. The former would be encouraged to minimize negative externalities and maximize positive externalities. The latter would be expected to refrain from carrying out inefficient policies. The ultimate beneficiary of the approach, however, would be the population living in the area and the taxpayer in particular.


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