Investor-State vs. State-State Dispute Settlement

International investment agreements have provoked intense criticism in the policy debate during recent years. Particularly contentious has been their "ISDS" mechanisms, which enable investors to litigate against host countries. This paper examines whether host countries would be better o¤ with state-state dispute settlement (SSDS), as often alleged, assuming that SSDS cause political/diplomatic litigation costs that are not present with ISDS. Two separate reasons why host countries might benefit from SSDS are identified, but neither provides a convincing argument for host countries to move to SSDS. If a host country has sufficient bargaining power to change the dispute settlement system to SSDS, it should primarily seek to reduce the stringency of the substantive undertakings in the agreement, rather than to introduce imperfections in the dispute settlement systems to reduce the bite of the agreement