A model of adverse selection and moral hazard in agri-environmental schemes is developed based on the input quota mechanism of Moxey <roman>et al.</roman> (<roman>Journal of Agricultural Economics,</roman> Vol. 50, (1999) pp. 187-202) and Ozanne <roman>et al.</roman> (<roman>European Review of Agricultural Economics,</roman> Vol. 28, (2001) pp. 329-347),...

This note analyses the design of agri-environmental schemes for risk-averse producers whose input usage is only observable by costly monitoring. The scheme penalises producers in proportion to input use in excess of a quota. A striking result is that if the scheme is designed in such a way that...