updated 2015 Oct 14
 
 

Moral Hazard

The subject of Moral Hazard is commonly discussed in chapters on Ethics in international business textbooks but it could also apply to chapters dealing with political risk and threat assessment or chapters on country analysis and management issues.

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student Zayeem K. in MGSC44 at UTSC in August 2014 made a good video in which he discusses Moral Hazard in the context of a major Canadian engineering construction company operating in Africa. https://www.youtube.com/watch?v=ix5ST_m6_MI

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Moral Hazard Ebola example

In August 2014 the world news was dominated by the threat of the Ebola virus spreading and Zayeem works this into his explanation of how a company, despite warnings of the government, goes ahead and gets involved in a risky situation, under the expectation that if things go very bad "it is OK, the government will save us". This premise of the government coming to "save your ass" is wrong for several reasons

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Moral Hazard Ebola example

1. Most governments around the world are extremely challenged to look after the needs of their people for everyday circumstances - there is not a lot of "left over" money to rescue people who voluntarily put themselves in a risk situation. There can also be a backlash if the government bails out a group of people who are criticized by the rest of the population for being the architects of their own misfortune wall street bankers people who travel to a conflict region in the middle of a war (Syria, Libya, Egypt) 2. Many times the risk that happens to a person (kidnapping, weather extreme,..) is so bad that a quick safe rescue is just not possible for logistical or communication reasons.  In the case of a kidnapping your home government might not even have the proper connections to have a "go between" to negotiate with the kidnappers. this applies to a moral hazard situation where people were told "do not go close to this region..." In the case of a weather extremes, (hurricane, tornado) the damage might be so massive that rescue vehicles and local communications are not available. this can apply to people such as "extreme adventure travellers", like climbers on Mount Everest who are not in shape or climbing with the proper equipment NGOs and journalists WTGR

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