Abstracting from potential incentive costs, both theoretical and applied research on contracts and contract choice suggest that bundling multiple contracts may be optimal. With the abundance of risk and uncertainty, especially among low-income environments that are often ill-prepared, the design and commercial success of contracts for mitigating these risks remain crucial. This dissertation brings together applied microeconomic theory along with careful empirical analyses to study three issues about contracts and risks, with implications for the functioning of markets, financial inclusion, unequal impacts of climate extremes and the design of insurance and financial contracts aim at mitigating environmental risks that confront society.

Chapter 2 studies the potential moral hazard and welfare consequences of interlinking credit with insurance market contracts, establishing that interlinking these two markets not only increases insurance demand, but induces large moral hazard effects in developing countries. Chapter 3 examines environmental risks and their differential impacts on human capital investments, specifically, documenting how Harmattan-induced "Meningitis" outbreaks potentially explain the observed gender gaps in educational attainments in Niger. Chapter 4 evaluates the impact of informal risk-sharing schemes on the adoption of "index" insurance contracts aimed at mitigating climate risks among low-income societies. Two competing forces are identified to show that informal network schemes have ambiguous effect on the demand for formal index insurance, which provides novel explanations for two empirical puzzles about index contracts along with an experimental evidence from rural India. The third project connects the first two via contracts and environmental risks, respectively.