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Community-industry contracting over natural resource use in a context of weak property rights: the case of Indonesia

By Stefanie Engel, Ramón López and Charles Palmer

Abstract

Decentralization in Indonesia has resulted in an increased influence of local communities over the terms of logging agreements with timber companies. The outcomes of such community–company negotiations vary significantly across communities. What are the conditions that cause this variation, and how can the outcomes be more effectively and efficiently influenced by third-party actors such as the local government or NGOs? This paper addresses these questions by developing a game-theoretic model to illustrate the strategic interactions between communities and companies. The model allows for endogeneity of de facto property rights and bargaining positions. We show that third-party actions to improve the community’s bargaining position by raising its reservation utility may result in an increase in the area logged and thereby harm the environment. Our results indicate that the strategy of intervention matters. In particular, strategies that raise the sensitivity of interventions to local logging threats are likely to be more cost-effective in supporting communities and reducing forest degradation than more indiscriminatory strategies. The model will be relevant to other situations where communities negotiate contracts over natural resource use with outside actors in a context of weak property rights, a situation increasingly observed in other developing countries

Topics: HD100 Land Use, GE Environmental Sciences, DS Asia
Publisher: Springer Netherlands
Year: 2006
DOI identifier: 10.1007/s10640-005-1706-5
OAI identifier: oai:eprints.lse.ac.uk:27923
Provided by: LSE Research Online
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