The Role of Risk Mitigation in Production Efficiency: A Case Study of Potato Cultivation in the Bolivian Andes

Using a stochastic production frontier to model potato production in Bolivia, we quantify the costs of environmental and activity diversification in the form of efficiency losses and yield forgone. We find that efficiency decreases with the number of fields in a geographic cluster, distance between the dwelling and a particular field, discontinuity between fields, and off-farm income. However, environmental diversification is more detrimental than activity diversification. Using spatial analysis of field and household efficiency measures we assess production vulnerability to climatic shocks and the potential of environmental diversification in mitigating shocks. We find important spatial clusters of low and high efficiency at the field-level suggesting that climatic shocks influence efficiency measures. Household-level efficiency measures exhibit random spatial patterns suggesting that on average households can mitigate the adverse effects of shocks through environmental diversification.