Bryan H. Druzin

Breaking the Market Dominance of ICSID? An Assessment of the Likelihood of Institutional Competition, Especially from Asia, in the Near Future

This chapter examines the possibility of the emergence of an alternative centre for investment arbitration—a very much debated, if not favoured, option in Asian policy circles—from a law and economics angle, conceptualizing investment arbitration in market terms. We argue that, given the current market dominance of the International Centre for Settlement of Investment Disputes (ICSID), the emergence of competition from Asia or from somewhere else should be constrained by network externalities (what is known as network effects in the literature). Network effects arise where the implicit value of a service (or product) increases as the number of other agents using the same service grows. As more users use the service and its utility is enhanced, additional consumers flock to the service, and on it goes, creating a positive feedback loop.

Why does Soft Law Have any Power Anyway

This paper explains why so much soft law is widely adopted and followed despite lacking legal and coercive force. It argues that legal standards are susceptible to network effects. Network effects occur when the value of a standard to a user increases as the number of other agents using the same standard grows, which in turn draws more users to the standard. This can trigger a spontaneous coalescence around a standard in a “snowball effect” fashion. The paper argues that many areas of soft law exhibit strong network effects, rendering such soft law uniquely calibrated to induce voluntary adoption and even compliance. The model helps explain why certain soft law gains traction, and has important implications for international governance. Finally, the paper argues that policy-makers can strategically harness this dynamic to stimulate legal harmonization, but cautions that policy-makers must also remain mindful of the negative consequences that network effects can generate.