| The role of crop credit insurance in supporting supervised credit for small farmers in developing economies is examined. It is shown that poor farmers are often asked to accept very high risk in order to participate in supervised credit programs. Crop credit insurance can be used to ameliorate the risk magnifying effects of indebtedness.;Using the Ehrlich-Becker model, crop credit insurance is compared to crop diversification and share tenancy. Crop credit insurance is shown to be more flexible than diversification. Share tenancy is unlikely to be as effective in reducing risk at the farm level. The model is extended to the two-period case, and it is shown that crop credit insurance as a risk management technique is superior to forced savings or forecasting. The effect of crop credit insurance on the supply of credit is analyzed. To the extent that insurance can control loan defaults, the supply of credit is increased and/or the default adjusted interest rate is lowered.;A systems model of an agricultural credit system in a developing economy, based on data from Mexico and Panama, is presented. The major institutions which control the credit system are described. The difficulty of analyzing crop credit insurance in isolation from the other credit system institutions is explained.;The major empirical research issues for crop credit insurance are set forth. Modifications are proposed for a microeconomic farm planning model, and a methodology for measuring the net social rate of return on crop credit insurance expenditures is proposed.;An economic model of insurance developed by Ehrlich and Becker was adapted to analyze the impact of crop credit insurance on farmer willingness to adopt new agricultural technology. Analytical results indicate that crop credit insurance may be effective in stimulating the adoption of new and riskier technology. It is also shown that risk neutral decision makers will not experience a welfare loss when forced to purchase crop credit insurance. |
