824 International Organization observed).Reneging on a contract governed by a treaty arrangement can damage important foreign policy interests. Finally,BITs raise ex post costs by significantly enhancing contract enforce- ment.These agreements contain mandatory dispute settlement provisions that inves- tors are entitled to use when they feel the host state has violated the relevant BIT. Significantly,investors can begin arbitration proceedings without the approval or support of their home government.Moreover,the host can neither prevent the legal proceeding from going forward,nor control the final decision of the international arbitration tribunal.The international tribunal can require a host found to be in violation of its obligations to pay monetary damages.The sovereign host state could,of course,refuse to pay,but that decision could have even more profound reputational consequences:when a government spurns the decision of a neutral authoritative third party with which it has voluntarily precommitted to comply,a range of important actors-public and private-are likely to infer thatthat govern- ment is an unreliable economic partner.By giving private parties a right to pursue and receive a legal remedy,BITs boost the credibility of the host government's commitment.As a result,we would expect some violations to be deterred by a BIT commitment and expected returns to investments to increase accordingly. Do these formal dispute settlement mechanisms actually come into play in the way we have described?Theoretically,we should expect such arbitrations to be rare,because fully informed parties should be able to settle "out of court"and avoid litigation costs.When we do observe arbitration,it would be more likely to indicate information asymmetries than the seriousness of the case.33 Nonetheless, a significant number of cases have in fact gone to arbitration.A recent conserva- tive estimate puts the number atat least 160 cases.34 Due largely to controversial measures taken by its government in early 2002,Argentina alone has recently been a party to some thirty BIT arbitrations,most of them under ICSID and the rest under UNCITRAL rules.35 BIT arbitrations have given rise to a number of signif- icant awards,including recent decisions against the governments of the Czech Republic($350 million),Lebanon($266 million),and Ecuador($70 million).36 In short,BITs represent a credible commitment because of the range of ex post costs-diplomatic costs,sovereignty costs,arbitration costs,and reputational costs-involved in both their observance and their violation.We argue below that some governments have incentives to increase these costs in order to attract FDI. 33.This point has long been recognized in the law and economics literature,see Bebchuk 1984. 34.UNCTAD 2004.This number omits,of course,disputes that were resolved prior to the arbitra- tion stage. 35.See (http://www.bomchilgroup.org/argmar04.html#16).Accessed 20 June 2006. 36.For examples of awards,see reports of the International Institute for Sustainable Development, available at (www.iisd.org/investment).Accessed 20 June 2006.See also The Narional Law Journal, Arbitration Survey,"Global Litigation,"15 September 2003.See also (http://blog.lewrockwell.com/ lewrw/archives/Friedman-BITs-9-15-03.pdf).Accessed 20 June 2006.observed!+ Reneging on a contract governed by a treaty arrangement can damage important foreign policy interests+ Finally, BITs raise ex post costs by significantly enhancing contract enforce￾ment+ These agreements contain mandatory dispute settlement provisions that inves￾tors are entitled to use when they feel the host state has violated the relevant BIT+ Significantly, investors can begin arbitration proceedings without the approval or support of their home government+ Moreover, the host can neither prevent the legal proceeding from going forward, nor control the final decision of the international arbitration tribunal+ The international tribunal can require a host found to be in violation of its obligations to pay monetary damages+ The sovereign host state could, of course, refuse to pay, but that decision could have even more profound reputational consequences: when a government spurns the decision of a neutral authoritative third party with which it has voluntarily precommitted to comply, a range of important actors—public and private—are likely to infer that that govern￾ment is an unreliable economic partner+ By giving private parties a right to pursue and receive a legal remedy, BITs boost the credibility of the host government’s commitment+ As a result, we would expect some violations to be deterred by a BIT commitment and expected returns to investments to increase accordingly+ Do these formal dispute settlement mechanisms actually come into play in the way we have described? Theoretically, we should expect such arbitrations to be rare, because fully informed parties should be able to settle “out of court” and avoid litigation costs+ When we do observe arbitration, it would be more likely to indicate information asymmetries than the seriousness of the case+ 33 Nonetheless, a significant number of cases have in fact gone to arbitration+ A recent conserva￾tive estimate puts the number at at least 160 cases+ 34 Due largely to controversial measures taken by its government in early 2002, Argentina alone has recently been a party to some thirty BIT arbitrations, most of them under ICSID and the rest under UNCITRAL rules+ 35 BIT arbitrations have given rise to a number of signif￾icant awards, including recent decisions against the governments of the Czech Republic ~$350 million!, Lebanon ~$266 million!, and Ecuador ~$70 million!+ 36 In short, BITs represent a credible commitment because of the range of ex post costs—diplomatic costs, sovereignty costs, arbitration costs, and reputational costs—involved in both their observance and their violation+ We argue below that some governments have incentives to increase these costs in order to attract FDI+ 33+ This point has long been recognized in the law and economics literature, see Bebchuk 1984+ 34+ UNCTAD 2004+ This number omits, of course, disputes that were resolved prior to the arbitra￾tion stage+ 35+ See ^http:00www+bomchilgroup+org0argmar04+html#16&+ Accessed 20 June 2006+ 36+ For examples of awards, see reports of the International Institute for Sustainable Development, available at ^www+iisd+org0investment&+ Accessed 20 June 2006+ See also The National Law Journal, Arbitration Survey, “Global Litigation,” 15 September 2003+ See also ^http:00blog+lewrockwell+com0 lewrw0archives0Friedman-BITs-9-15-03+pdf&+ Accessed 20 June 2006+ 824 International Organization