Predictability versus Flexibility: Secrecy in International Investment Arbitration

Abstract

Transparency can have a large impact on whether the work of international legal institutions such as tribunals is seen as legitimate as well as the ability of governments to manage the domestic audience costs of adjusting to international norms. International investment arbitration offers a special opportunity to study transparency because nearly always the parties to international investment disputes have the choice of whether to reveal the final results of arbitration to the public. Working with a new statistical database of disputes at the world’s largest investor-state arbitral institution — the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID) — this paper examines the incentives of individual firms as well as governments to keep the details of their disputes secret. Secrecy prevails in cases where the incentives for privacy are strongest: over investments that have long time horizons where costly compromises by investors and the host state are essential to keeping the project financially viable and when any party has reason to expect ex ante that it will lose. This research has sobering implications for scholarship that has identified transparency as an essential condition for institutional legitimacy and effectiveness because the public is least informed about arbitral outcomes in precisely those cases where broad public interests are likely to be most affected.