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Abstract: Nearly 2700 highly potentinternational investment agreements protect foreign investment against hostcountry policies. This paper analyzes the highly contentious provisions regardingregulatory expropriations that are included in most agreements. These stipulationsrequest compensation for policy interventions other than direct take-overs ofassets. In the model countries negotiate the circumstances under whichcompensation should be paid, and when the host country can regulate withoutcompensation. We show e.g. that: (i) Despite the simplicity of the scheme, itfully mitigates distortions both to foreign investment and to host countryregulation under robust circumstances; (ii) Agreements will not cause under regulationfrom a joint perspective; (iii) Agreements will include investor-state disputesettlement; (iv) North-South agreements solve the inability of South to protectinward investment, while North-North agreements solve Prisoners Dilemmaproblems with regard to investment protection for reciprocal investment flows,benefitting investors at the expense of the rest of society.