关于moral hazard和adverse selection

问题如下：

Central Aldorria (CA) is a country located close to the equator with farming and manufacturing interests. CA has ocean to its east and west but has plenty of fresh water flowing through the central part of the country that is dammed by farmers for irrigation purposes. As part of a compromise for ending a civil war 50 years earlier, the farmers, rather than the central government, effectively own the rights to the fresh water.

Since the end of the civil war, manufacturing firms that require fresh water have located downstream from the farms. The manufacturers frequently need to negotiate with the farmers to release water from the dams for a price.

Recently, a dispute between the country’s manufacturing interests and farming interests arose over the price of water. The farmers believe the price is too low and have not let the dams release water, to the point that some fields have flooded. Correspondingly, the manufacturers insist that the price is fair and want the farmers to increase the availability of fresh water given the excess water available.

Prior to the president’s intervention, the actions by the farmers relative to the manufacturers over the disputed price of water is best described as:

选项：

A.moral hazard. B.adverse selection. C.regulatory arbitrage.

解释：

A is correct. The farmers’ having the ability to restrict the release of water to the detriment of the manufacturers during the pricing dispute is an example of a moral hazard.

B is incorrect because there are no informational asymmetries between the groups to create adverse selection.

C is incorrect because regulatory arbitrage requires two different regulatory jurisdictions and the ability to choose the jurisdiction that is most advantageous. No such ability exists in this case.