This paper studies the extent to which poor institutions compromise risk-sharing. We model a multilateral organization as a social contract that provides insurance to members. Countries privately observe the realization of a performance variable with a verification cost that differs across...

We construct a model of FDI, risk and aid, where a country loses access to FDI and aid if the country expropriates FDI. We show that: (i) The threat of expropri- ation leads to under-investment; (ii) The optimal level of FDI decreases as the risk of expropriation rises; and (iii) Under certain...