Moral Hazard in International Economic Law
- grantgilbert19
- Mar 27
- 1 min read
By: Zachary Mollengarden
The general premise of moral hazard is intuitive. Actors behave differently—namely, worse—when they are protected against the consequences of their actions. Moral hazard is also ubiquitous. A medical insurer complaining of patients requesting unnecessary procedures is as apt to cite moral hazard as a legislator berating the executive of a “too big to fail” bank for unduly risky lending. International economic affairs are particularly rife with moral hazard. An alphabet soup of institutions is devoted to protecting sovereign States against the economic consequences of their actions. Those States—and the ministries, municipalities, and ultimately, citizens of which they are comprised—are as susceptible to moral hazard as any investment banker.
The question is what to do about it. If moral hazard is an unavoidable byproduct of international economic support, perhaps policymakers’ energies would be better spent elsewhere. This Article argues against such resignation. Descriptively, this Article attempts to answer fundamental questions about moral hazard often taken as given or simply overlooked, such as what makes it particularly moral, or indeed, particularly hazardous. Prescriptively, this Article draws upon those answers in order to identify the most effective means law offers to curtail moral hazard in international economic affairs. This Article contends that moral hazard’s ubiquity should not be mistaken for intractability, and illustrates the empirical and normative benefits of distinguishing between the two.