Donaubauer, Julian Neumayer, Eric Nunnenkamp, Peter
Kiel Working Paper 2074
When an investor sues a state for alleged breaches of its obligations under an investment treaty or a trade agreement with investment provisions, all that should matter for who wins the case are the merits of the claim itself. Alas, investor-to-state dispute settlement (ISDS) does not take place in a vacuum. Such cases are decided by a tribunal typically consisting of three arbitrators, one each nominated by the two parties while the president is mutually agreed upon. We demonstrate that the kind of involvement of these arbitrators in previous ISDS cases matters for the case under dispute. Specifically, we show that what we label the president's pro-investor bias - the number of times they have previously been nominated by an investor minus the number of times they have represented respondent states - raises the likelihood that an investor wins an ISDS case. An investor can further raise its chances of prevailing by appointing an arbitrator with greater experience, defined as the number of ISDS cases they have previously been involved in. Greater experience of the state-appointed arbitrator has no independent effect but conditions the effect that president bias has. Given the president's crucial role, the main implication of our findings is that presidents should be drawn from among those who have not systematically represented more one side than the other in previous cases.
investor-state dispute settlement international investment agreements arbitration