Who owns the right? The determinants of community benefits from logging in Indonesia

Decentralization reforms in Indonesia have resulted in forest-dependent communities having the opportunity to legally trade in their customary rights to the forest for a share in timber rents for the first time since the early 1970s. Communities actively engaged in negotiations with companies over logging on land to which communities have uncertain property rights. The financial and social benefits that flowed to communities from these agreements appear to vary significantly: while some communities successfully claimed their share, others continued to lose their forests to industrial interests with relatively little financial compensation. This study examines the levels of community payoffs from logging contracts based on a survey of over 60 communities in East Kalimantan. Moreover, building on a game-theoretic model of community-firm interactions, hypotheses are presented regarding the potential factors that may influence the relative size of these payoffs. In a situation such as Indonesia where community rights remain weak and poorly enforced, the community's ability to self-enforce its rights over the forest is hypothesized to be crucial for claiming a significant share of logging rent. The theoretical hypotheses are supported by econometric analysis using survey data. Results suggest that communities deriving a large proportion of incomes from the forest, are more likely to obtain higher payoffs. The same is true for wealthier communities. Results are consistent with collective action theory in that ethnic homogeneity and social capital are associated with higher community payoffs. (c) 2005 Elsevier B.V. All rights reserved.