Answer
( a) A Landlord is represented as a principal, and a tenant is represented as an agent. First of all the landlord gives his property to another person to use it-tenant.
The landlord doesn't know the condition of his building, which is a piece of asymmetric information.
So he wants to be sure and requires a security deposit to be paid.
This is how he reduces the moral hazard.
(b) Owners of the firm represented as principles because their business leads someone else.
Executives are the agents as they take care of companies' day to day activities.
There is some asymmetric information since no one knows whether executives will make good or bad decisions.
The way of decreasing moral hazard is to give them the opportunity to buy stocks of the company as prevention from risk in the future.
(c) The car insurance company represented as the principal, and the customers are agents.
Since customer's behavior is unfamiliar and unpredictable to the principal, there is asymmetric information. '
Installing anti-theft devices could decrease the moral hazard.
