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Abstract
Some research shows that foreign investors generally respond negatively to expropriation by host governments, and other research reveals that investors cope with expropriation. Why are there varied responses to expropriation? The nature of the obsolescing bargain—expropriation—is under-explored and measured unclearly in the political risk literature. I argue that investors respond more negatively to direct than indirect expropriation because the former is a more perceptible policy with clearer consequences for investors’ control rights, which sets up expectations for comparatively worse predatory behavior by the government in the future. Additionally, investors could have a better chance to recover and profit from all of their investments after indirect expropriation compared to direct expropriation, therefore, investors would react more negatively to the latter. I conduct first-pass testing of this prediction using an original survey experiment focusing on the oil industry and using mass public subjects. Results show that the direct expropriation treatment group was less likely to want to reinvest, and the likelihood of wanting to exit to an outside option was higher for subjects who faced direct expropriation. I supplement the experimental findings with a quantitative analysis that is inconclusive and qualitative interviews of practitioners from the oil industry that support the experimental findings.
Acknowledgments
I thank Robert Blair, Clint Peinhardt, Nate Jensen, Áslaug Ásgeirsdóttir, Rachel L. Wellhausen, Dustin Tingley, and anonymous reviewers for many helpful comments.
Informed consent
The author received informed consent from all subjects in the survey experiment and qualitative interviews.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Data availability statement
The data that support the findings of this study are available from the corresponding author upon request.
Notes
1 Investors operate where mineral deposits are and not where they may prefer them to be.
2 Qualtrics maintains a subject pool called ESOMAR in which it partners with 20 online panel providers to provide researchers with online samples. The subject pool is reflective of the census data across age, gender, and region. While majority of respondents in this study live in North America, a few of them live in other regions of the world, such as East Asia and the Pacific and Latin America and the Caribbean.
3 Experimental domain groups in IPE, representation, international security, and domestic politics are each compared to the non-political reference category, and the difference in magnitude of the elite-public gap is the smallest and statistically insignificant for the IPE group.
4 The market value for the oil and gas company is based on the 2018 Fortune 500 list’s assessment of Exxon Mobil.
5 The mean award is in the hundreds of millions of US dollars, weighted upwards by the handful of awards in the billions of US dollars. As such, the median award is a more accurate estimate (Wellhausen, Citation2016).
6 For more on Credendo’s rating methodology, see Jensen (Citation2008). I utilize this measure as opposed to the measure used in Kerner and Pelc (Citation2022) because the latter measures the visibility of expropriation types and not the current level of risk.
7 Following IRB protocol requirements, subjects reporting an age under 18 years were screened out of the survey.
8 The question for the lottery choice game is in the Online Appendix.
Additional information
Funding
Notes on contributors
Alero Akporiaye
Alero Akporiaye is an Assistant Professor of Political Economy in the Department of History, Philosophy, and the Social Sciences at the Rhode Island School of Design. Her research focuses on political risk, oil politics, and corporate social responsibility.