Property Rights, Political Risk, Federalism. 1. What is “political risk”? Assessing political risk, property rights Managing political risk Federalism Free trade Regulatory conflict and preemption. Property Rights, Investment & Political Risk. What is “political risk”?
What is “political risk”?
What sort of political risks can undermine the value of a firm’s investment?
Nationalization or “creeping expropriation”
Law or Policy change (regulatory; monetary)
Early 20th c: rapid growth of international oil industry
1930s-70s: Latin American nationalizations
1960: OPEC formed
How can firms contemplating investment in developing countries predict political risk?
1960s-70s: Middle east nationalizations
“corporate managers came to view risk analysis as an ‘ivory tower exercise,’ rooted in academic theory rather than managerial practice.” HBS Note on Political Risk
Then how do companies (or their investors or insurers) decide when political risk is too great? What characteristics do you think are correlated with political-legal stability, or negatively correlated with political risk?
What is a “taking” for constitutional purposes? Where does this idea come from?
5th Amendment: “Nor shall private property be taken for public use without just compensation.”
What is a “physical taking”? A “regulatory taking”?
Lucas v. S.C.Coastal Council (1992)
1986: Lucas purchased lots for $975,000 to develop high-end resort homes
1988: SC statute prohibited construction on lots
Trial court determined that land now “valueless” (but had nominal value)
How did the court analyze this problem? Did it use the Penn Central analysis?
If regulation leaves no “economically beneficial use” of the property, then is a taking requiring compensation. Was the land literally valueless?
Is there any exception to the majority opinion’s rule?
The “nuisance exception”: what is it?
Kennedy concurrence: “The common law of nuisance is too narrow a confine … The state should not be prevented from enacting new regulatory initiatives in response to changing conditions, and courts must consider all reasonable expectations whatever their source.
Blackmun dissent: “Today the Court launches a missile to kill a mouse.”
How can corporate managers manage political risk?
Soif free trade makes most consumers happy and usually creates wealth, by and large, then why do governments try to restrict it?
What about protecting public health, safety and local community standards and traditions?
Art. II grants Congress the power to “regulate Commerce with foreign Nations, and among the several States …”
Does that language limit state power? How?
If intrastate and intra-EU protectionism is so clearly prohibited under U.S. and EU law, why do member states continue to enact such legislation?
So is the power of the EU and of the American national government overriding and absolute? Are their any limits to their regulatory power?
“This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land . . .”