Why Comply? Evidence from Investor-State Dispute Settlement

Extensive research assumes that states sign bilateral investment treaties to signal their commitment to property rights to foreign investors. In this paper we examine whether the same signalling dynamic applies after disputes arise under these treaties. Do states comply with adverse ISDS awards to signal that they are committed to upholding foreign investors' property rights? We argue that complying with ISDS awards is most important for states with weak domestic property rights institutions, because they are more reliant on international institutions to reassure foreign investors. We also expect Central and Eastern Europe states to exhibit more extensive compliance than other states, but that their compliance performance weakens as their domestic property rights institutions are strengthened. In our analysis, we rely on a new database on worldwide compliance with ISDS decisions and employ a mixed methods research design. First, we investigate quantitatively whether states with weak domestic protection of property rights are more likely to fully and promptly comply with ISDS awards. Second, we use interview and archival data to explore whether and to what extent states' compliance with ISDS decisions is motivated by signalling dynamics.