Obsolescing Bargain and Economic Equilibrium in International Energy Investment Contracts

Abstract

This article examines the concepts of obsolescing bargain and economic equilibrium in international energy investment contracts. Equilibrium means the balance of interests that the parties’ contract embodies. Part of the idea of equilibrium is to entrench a way to keep their interests in harmony. Equilibrium is the point that host governments and foreign investors reach at the time when they strike the bargain. The equilibrium is stable if it is resilient to events which challenge it and have the potential of disrupting the balance. The point to the obsolescing bargain model is that the equilibrium is inherently unstable and therefore, there is a need for a proper framework surrounding the investment contract in order to reinforce the stability of the equilibrium. This is the key point the obsolescing bargain model makes in relation to the instability of the contractual equilibrium. If we look at it such relationship as a one-off set of rights and duties, then it is unstable. But, instead if we look at the equilibrium as a relationship that is dynamic and evolves, then it can be stable. This article underscores the significance of maintaining equilibrium in the relation of foreign investor and host state to avoid obsolescing bargain and international investment disputes. Economic equilibrium, foreign investor, host state, international energy investment contracts, obsolescing bargain, risk of expropriation, international investment disputes, contractual flexibility, allocation of risk, contractual stability