Question

QUE S TION 7 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 could result in South Korea engaging in less risky behaviour due to a desire not to waste United States' military resources ם The agreement could result in South Korea sometimes engaging in risky behaviour as they know they will always be protected by the United States. 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 is an example of moral hazard as South Korea changed its behaviour prior to the agreement entering into force.

Answer 1

Right Answer: The Agreement is an example of moral hazard as south Korea changed its behavior prior to the agreement entering into force.

Since here Korea has been protected by the USA, thus now it even takes more risky actions against its rogue neighbors. South Korea behavior has changed after being protected by the USA, it is clear case of moral hazard.