112 International Investment and Colonial Control: A New Interpretation
to which different foreign investors engage in collective action to carry out these
monitoring and enforcement activities.
The security of property across borders is in essence a contractual problem.
Overseas investment involves an implicit or explicit contract between the investor
and the host state. This contract may commit a host government to repay a
loan, to allow a firm to mine copper, or to permit the establishment of a local
branch factory of a multinational corporation. If the host government breaks
the contract—by not servicing the loan, expropriating the mine, or closing
down the factory—foreign investors have no direct recourse. This requires
investors to devise some mechanism to monitor and enforce their property
rights. In this sense home-country military force is one choice among a number
of devices to protect overseas assets....
Regarding the security of property across borders as a problem in relational
contracting directs attention to characteristics of the assets, product markets, and
informational environment that affect the ability of the parties to monitor and
enforce their contract. Variation in such contractual problems in turn gives rise to
different organizational or political responses.
In addition to underlying contractual questions, the need for investors to monitor
and enforce host-country compliance can lead to problems of collective action. In
many cases, of course, property rights can be secured on a purely individual basis
so that there is no incentive for investor collaboration. All investors may have a
common interest in ensuring stable rights to private property, but this does not
mean that such stable rights must necessarily be provided to all investors. Each
investor is first concerned about the investor’s own property rights, and an investor
can, in fact, benefit by receiving exclusive property rights. Where secure property
rights can be supplied on a specific basis to specific investors, there is little reason
for cooperation among investors.
On the other hand, the protection of foreign property may be made substantially
more effective if investors cooperate. Whenever the combined action of many
investors reduces the cost of protecting their property to each investor, cooperation
would be desirable to them. This might be the case, for example, when evaluating
the host government’s compliance with contractual commitments can be costly—
such as when it is difficult to separate the impact of exogenous events from
straightforward cheating. In this case, crucially important accurate information
about the host government’s actions and intentions serve all interested investors,
and it is in the interest of all to cooperate in obtaining the information....
However, the circumstances that can make cooperation attractive to investors
can also make it difficult. If the benefits of joint action accrue to larger groups of
(or all) foreign investors, such protection may come to take on the characteristics
of a public good. Under these circumstances, a host government’s commitment to
respect the property of foreign investors (or a class of foreign investors) is indivisible,
inherently available to all investors (or all members of a class of investors). When
monitoring and enforcing compliance with quasi-contractual commitments to
property rights serves a large class of (or even all) investors, there may be collective
action problems associated with the provision of this public good. Because the
public good would benefit a large group of actors, actors have an incentive to