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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 Koreas 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 assistanceOption 4 Moral hazard is a situation when one of the person gets involved in a risky event because of awareness of protection against the risk. Here South Korea would change its behaviour because of protection from US which might be dangerous in the future.

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