This appears to be a problem for North Korea. The solution to this pesky moral hazard problem is to force diplomats to "post a bond" in the form of offerring a hostage.
Thae said there was one big obstacle to his defection.
Thae Yong-ho: All North Korean diplomats are forced to leave one of their children back in Pyongyang as a hostage.
Bill Whitaker: As a hostage?
Thae Yong-ho: Yes.
His break came when that policy unexpectedly changed and Thae’s oldest son was allowed to join the family in London. They all agreed to defect. He would not give us the details about his escape and who helped. But we know he was kept in a safe house by South Korean intelligence agents and questioned for more than three months. He said it was too dangerous for us to meet his family.
But if you are going to do it, you must do it continuously.
This is not unlike an alleged criminal posting a bond while awaiting trial or a tradesman posting a bond against faulty repairs.
Suggested by Helen Gorman
North Korea is dealing with the defection of diplomats within the rules any company (insurance companies) employs to minimize losses. Moral hazard “refers to the reduced incentive to exercise care once you purchase insurance. Moral hazard arises from hidden actions” (Froeb, McCann, Shor, & Ward, 2016).ReplyDelete
The dilemma North Korea is having is trying to determine the actions of the diplomats (individuals) that have traveled abroad before they act. In this case defection. Since North Korea cannot truly understand the thoughts of individuals, an urgent need to eliminate the information asymmetry exits. The main thing to take away from moral hazard is to anticipate and protect yourself against it. North Korea having limited means of coercion with it citizens (citizens have no stake in property or legally defendable human rights) to not defect must find a suitable replacement. Unfortunately opportunity does exist in familial bonds. Family allows North Korea the perfect opportunity to create true leverage with real consequences for the defecting diplomat. In effect, North Korea is monitoring (through the threat of harm against a diplomat’s relative) and changing the incentives of diplomats to minimize risk of defection.
Defection has large consequences (losses) for Korea. Depending on the value of the diplomat, the individual defecting could have political, economic, or social information that can prove embarrassing or catastrophic for a society such as North Korea where information asymmetry with its own citizens manage to keep the government in power.
Froeb, L. M., McCann, B. T., Shor, M., & Ward, M. R. (2016). Managerial Economics A problem Solving Approach 4e. Boston, MA: Cengage Learning.