Decisions are made daily concerning many facets of the National School Lunch Program at the federal, state and local levels, but how are decisions made with regard to the actual choice of foods on school lunch menus? No study that we are aware of examines the incentives and barriers among the SFAs decision-making process with regard to the provision of healthier lunch menus. The issue faced by SFAs is a classic moral hazard problem: a SFA’s effort for the provision of healthy menu options is unknown (i.e., hidden actions). SFAs can accept federal funds and agricultural commodities to provide healthy lunches while districts create school wellness policies “requiring” minimum nutritional quality of school-provided foods, but the overall quality of implementation and compliance are not observable. This paper utilizes the Principal-Agent (PA) theory to model this moral hazard problem and unveil the barriers and incentive targets and channels behind the observed inefficient school nutrition policy implementation.