This article investigates the application of game theory to the sphere of investor-state dispute settlement and related dispute resolution strategies through international arbitration. When deciding whether either to bring or to defend a claim rather than pursue settlement, investors and states will select a strategy to maximize their respective payoffs, either by securing compensation or successfully defeating a claim for compensation. This article will develop a model decision making strategy for claimant investors and defendant states based on the observed patterns of outcomes in actual investment treaty arbitration awards. Embedding the problem in the context of utility and hence risk-aversion, it will go on to offer a general solution for the arbitration "game" based on risk-neutral participants using historic data on the allocation of costs, the probability of claimant victory and the scaling of claims in past arbitration awards. The mathematics will quantify the probability of claimant victory below which it would not be reasonable for a potential claimant to proceed. Furthermore, an algorithm has been developed for calculating the settlement sum that the respondent may offer with a reasonable expectation of acceptance by the claimant. While the claimant's chances of success may be disputed by the two parties in any particular case, a long-run average for the probability of success may be calculated for a general claimant, which might prove more acceptable as a proxy. The resulting algorithm is then tested and corroborated against published data on previous arbitration outcomes.
Tuesday, January 26, 2016
Collins, Thomas, Broom, & Vu: A Game-Theoretical Model of Investment Treaty Arbitration
David A. Collins (City Univ. London - Law), Philip Thomas (City Univ. London - School of Engineering and Mathematical Sciences), Mark Broom (City Univ. London), & Trung Hieu Vu (City Univ. London) have posted A Game-Theoretical Model of Investment Treaty Arbitration. Here's the abstract: