Question

The United States of America and the Republic of Korea (South Korea) have a strong military partnership. The United States of America has troops on South Korean soil and has issued an "ironclad" security commitment to the nation, so in the event that something occurs the United States will provide military assistance to South Korea. Which of the following statements are true The agreement causes South Korea to engage in less risky behaviour due to a desire not to waste United States' military resources. The agreement causes the United States to engage in risky behaviour for they know they will always have South Korea's co-operation. The agreement is an example of adverse selection as South Korea is more informed about the military situation and thus has lowered the quality of the military partnership. The agreement allows for the potential existence of moral hazard as South Korea may change its behaviour knowing that the United States will provide military assistance

Could anyone help me to check this？My friends said this ans is wrong

Answer 1

Option 4 is the correct option because as korea is insured by the military of US which will give it an incentive to engage in risky event. This situation is a case of moral hazard because when a party gets insured it will handle it's resources less carefully provided with the fact that if loss occurs it will be covered by the insurance company. Same analogy is applicable in the case of korea.