Each of the following situations involves moral hazard. In each case, identify the principal and the agent and explain why there is asymmetric information. How does the action described reduce the problem of moral hazard?
a. Landlords require tenants to pay security deposits.
b. Firms compensate top executives with options to buy company stock at a given price in the future.
c. Car insurance companies offer discounts to customers who install anti-theft devices in their cars.
Answer one of these questions. You may answer more than one using a new reply for each question