Characterization of the interaction between moral hazard and adverse selection

Characterize the full interaction between moral hazard and adverse selection in determining the performance of pooled carbon-farming contracts under heterogeneous farm sizes.

Background

The paper studies pooled carbon-farming contracts offered by an aggregator to heterogeneous smallholder farmers who differ in adoption costs and farm sizes. Moral hazard arises because farmers privately choose effort, whereas adverse selection arises because adoption costs are privately known. In the heterogeneous-farm-size experiments, the combination of moral hazard and adverse selection performs comparably to moral hazard alone, and the authors report that adverse selection does not meaningfully reduce performance when moral hazard is present.

The reported result is empirical and simulation-based rather than a general theoretical characterization. The unresolved problem is therefore to explain and formally characterize how the two information frictions interact across farm-size distributions, contract structures, and dynamic agronomic environments.