For Whom is MAI? A theoretical Perspective on Multilateral Agreements on Investments

fix henceforth β_u = 0:5:22 From this follows that, at given z and p, the stricter
is MAI (i.e., the higher is °), the lower is countries’ rent extraction.Ahigher
° not only reduces the share of rents appropriated by host countries but also
raises investments undertaken by MNEs. However, since βh — ° < 0:5, the first
effect always prevails, and the term (β_h — °) (1 — β_h + °) necessarily falls with
°:

4 Equilibrium Analysis

In this section, we analyze the location offirms and the choice of countries about
their participation to MAI that emerge at equilibrium. MNEs are identical,
and each is faced with the same problem. Their behavior is summarized by
a probability p of locating MNEs in MAI countries. Countries instead differ
among themselves, and may solve their problem differently. The strategy of a
given country h is an element in fZ; —Zg. Countries’ behavior is summarized
by the fraction z of countries that decide to join the set Z of MAI members.

A Nash equilibrium of this game is defined by a pair of values (p; z), p 2 [0; 1]
and z 2 [0; 1], such that no firm is willing to revise the probability of locating
into MAI countries, and no country is willing to enter or exit MAI.

Considerfirst a sub-class of cases in which all countries can potentially agree
on MAI, i.e., where °<β_l . It is easy to ascertain (by inspection of (5) and (6))
that any candidate equilibrium enters one of the following characterizations:

i) “Full MAI”, p = 1, z = 1, which occurs if and only if EZ¼ > EZ¼ and
EZyh > E-Zyh for all h;

ii) “No MAI”, p = 0, z = 0, which occurs if and only if EZ¼ < E_-Z¼ and
EZyh <E-Zyh for all h;

iii) “Partial MAI”, p 2 (0; 1), z 2 (0; 1), which occurs if and only if EZ¼ =
E-Z ¼, EZ yh >E-Z yh for some h and EZ yh <E-Z yh for some other h.

To solve our game it is necessary to have a better description of the countries
that are most keen to join MAI. The following Lemma allows a characterization
of the countries that decide to be MAI members when the candidate equilibrium
exhibits a partial MAI.

Lemma 1 If there exists β such that EZy_h = E_-Zy_h for one h, then: i)
EZyh > E_-Zyh for all h such that β_h > β; ii) EZy_h < E_-Zy_h for all h
such that β_h < β.

Proof: See Appendix 1.

The intuition of the above Lemma is straightforward. Countries with high
bargaining power suffer less in relative terms from MAI membership compared

²²As will be clear in the following analysis, what matters for our results is that β_h ∙ 0:5
for all h, whereas the choice βu = 0:5 only serves the scope of simplifying notations and the
characterization of equilibrium.

13

<<   11   12   13   14   15   16   17   >>

More intriguing information