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 antitheft devices in their cars.

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Principles of Economics (MindTap C...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305585126
BuyFind

Principles of Economics (MindTap C...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305585126

Solutions

Chapter
Section
Chapter 22, Problem 1PA
Textbook Problem

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 antitheft devices in their cars.

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Chapter 22 Solutions

Principles of Economics (MindTap Course List)

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