13 ref.

Agricultural production is typically a risky process in which farmers are confronted by numerous natural and economic sources of uncertainty. Considerable empirical evidence exists suggesting that these risks can have important consequences for farmer's decisions, especially among small farms in developing countries. In order to reduce risks, farmers tend to diversify over a wider mix of crops than they would in the absence of risks, and they may be more reluctant to use modern inputs (such as fertilizers) or to adopt higher yielding crop varieties because of the increased risks associated with their use. The purpose of this paper is to analyze farm level considerations which determine the kinds of crop insurance that might be effective in reducing risk averse behavior. These considerations are elucidated at a quite general level and then formalized into a specific mathematical model. This model is then used to analyse the efficiency and potential benefits of current crop insurance schemes in Mexico and Panama\}