It is a commonplace observation that risk-averse farmers ought to prefer less risk. In this paper, we provide three … qualifications to this commonplace. First, we note that (properly defined) “less risk” need not imply “smaller variance.” Second, we … note that when farmers produce under contract, there may be an important tension between risk and incentives, and we …

We analyze the role of transaction costs in risk transfer markets. For example, when these markets are in their infancy …, they are characterized by few contracts and high transaction costs. In this case, we show that only highly risk … present on either the quality of the risk being transferred or the quality of the counterparty to which the risk is ceded …