This paper analyzes the considerations that lead policy makers to undertake extension investments as a key public responsibility, as well as the complex set of factors and intra-agency incentives that explain variations in performance between different extension systems. The goals of extension include transferring knowledge from researchers to farmers, advising farmers in their decision making, and stimulating agricultural development. While extension agents often provide services unrelated to farm activities, this paper focuses on agricultural and farm management knowledge dissemination. The paper provides a conceptual framework outlining farmers' demand for information, the welfare economic characterizations of extension services, and the organizational and political attributes that govern the performance of extension systems. The conceptual framework is used to analyze the likely and actual effectiveness of several extension modalities: "training and visit" extension, decentralized systems, "fee-for-service" and privatized extension, and farmer-field-schools. The paper also discusses methodological issues pertaining to assessment of extension outcomes, and reviews the empirical literature on extension impact. Highlighted are the efficiency gains that can come from locally decentralized delivery systems with incentive structures based on largely private provision, although in poorer countries these will still be publicly funded. In wealthier countries, and for particular higher income farmer groups, extension systems will likely evolve into fee-for-service organizations. (Contains 94 references.) (Author/SV)