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Payments for environmental services as an alternative to logging under weak property rights: The case of Indonesia

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  • Engel, Stefanie
  • Palmer, Charles

Abstract

Decentralization reforms in Indonesia have led to local communities negotiating logging agreements with timber companies for relatively low financial payoffs and at high environmental cost. This paper analyzes the potential of payments for environmental services (PES) to provide an alternative to logging for these communities and to induce forest conservation. We apply a game-theoretical model of community-firm interactions that explicitly considers two stylized conditions present in the Indonesian context: (i) community rights to the forest remain weak even after decentralization, and (ii) the presence of logging companies interested in the commercial exploitation of the forest. Intuition may suggest that PES design should focus on those communities with the lowest expected payments from logging deals. However, we show that these communities may not be able to enforce a PES agreement, i.e., they may not be able to prevent logging activities by timber companies. Moreover, some communities would conserve the forest anyway; in these cases PES would not lead to additional environmental gains. Most important, the introduction of PES may increase a community's expected payoff from a logging agreement. A failure to consider this endogeneity in expected payoffs could lead to communities opting for logging agreements despite PES, simply allowing communities to negotiate better logging deals. Our results indicate that PES design is a complex task, and that the costs of an effective PES system could potentially be much higher than expected from observing current logging fees. Using data collected in Indonesia on actual logging fees received by communities, we illustrate how the theoretical results could be used in empirical analysis to guide PES design. Our results are likely to be useful in other cases where local people make resource use decisions but have weak property rights over these resources, and where external commercial forces are present. The results highlight the importance of understanding the details of the local context in order to design PES programs appropriately.

Suggested Citation

  • Engel, Stefanie & Palmer, Charles, 2008. "Payments for environmental services as an alternative to logging under weak property rights: The case of Indonesia," Ecological Economics, Elsevier, vol. 65(4), pages 799-809, May.
  • Handle: RePEc:eee:ecolec:v:65:y:2008:i:4:p:799-809
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    References listed on IDEAS

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    1. Alston, Lee J. & Libecap, Gary D. & Mueller, Bernardo, 1999. "A model of rural conflict: violence and land reform policy in Brazil," Environment and Development Economics, Cambridge University Press, vol. 4(02), pages 135-160, May.
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    Cited by:

    1. Mumbunan, Sonny & Ring, Irene & Lenk, Thomas, 2012. "Ecological fiscal transfers at the provincial level in Indonesia," UFZ Discussion Papers 06/2012, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
    2. Vallino, Elena & Aldahsev,Gani, 2013. "NGOs and participatory conservation in developing countries: why are there inefficiencies?," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201318, University of Turin.
    3. Song, Conghe & Zhang, Yulong & Mei, Ying & Liu, Hua & Zhang, Zhiqiang & Zhang, Quanfa & Zha, Tonggang & Zhang, Kerong & Huang, Chenglin & Xu, Xiaoniu & Jagger, Pamela & Chen, Xiaodong & Bilsborrow, Ri, 2014. "Sustainability of Forests Created by China's Sloping Land Conversion Program: A comparison among three sites in Anhui, Hubei and Shanxi," Forest Policy and Economics, Elsevier, vol. 38(C), pages 161-167.
    4. Palmer, Charles, 2011. "Property rights and liability for deforestation under REDD+: Implications for 'permanence' in policy design," Ecological Economics, Elsevier, vol. 70(4), pages 571-576, February.
    5. Veronesi, Marcella & Reutemann, Tim & Zabel, Astrid & Engel, Stefanie, 2015. "Designing REDD+ schemes when forest users are not forest landowners: Evidence from a survey-based experiment in Kenya," Ecological Economics, Elsevier, vol. 116(C), pages 46-57.
    6. repec:eee:ecoser:v:6:y:2013:i:c:p:2-11 is not listed on IDEAS
    7. Wunder, Sven & Engel, Stefanie & Pagiola, Stefano, 2008. "Taking stock: A comparative analysis of payments for environmental services programs in developed and developing countries," Ecological Economics, Elsevier, vol. 65(4), pages 834-852, May.
    8. Koellner, Thomas & Sell, Joachim & Navarro, Guillermo, 2010. "Why and how much are firms willing to invest in ecosystem services from tropical forests? A comparison of international and Costa Rican firms," Ecological Economics, Elsevier, vol. 69(11), pages 2127-2139, September.
    9. Engel, Stefanie & Pagiola, Stefano & Wunder, Sven, 2008. "Designing payments for environmental services in theory and practice: An overview of the issues," Ecological Economics, Elsevier, vol. 65(4), pages 663-674, May.
    10. repec:eee:ecoser:v:27:y:2017:i:pa:p:150-160 is not listed on IDEAS
    11. repec:eee:forpol:v:80:y:2017:i:c:p:71-79 is not listed on IDEAS
    12. Jean-Michel Salles, 2011. "Valuing biodiversity and ecosystem services: why linking economic values with Nature?," Working Papers 11-24, LAMETA, Universitiy of Montpellier, revised Dec 2011.
    13. Jack, B. Kelsey, 2009. "Upstream-downstream transactions and watershed externalities: Experimental evidence from Kenya," Ecological Economics, Elsevier, vol. 68(6), pages 1813-1824, April.
    14. repec:eee:ecolec:v:150:y:2018:i:c:p:11-23 is not listed on IDEAS
    15. repec:eee:ecolec:v:144:y:2018:i:c:p:195-213 is not listed on IDEAS
    16. repec:eee:ecoser:v:9:y:2014:i:c:p:83-97 is not listed on IDEAS
    17. Curran, Michael & Kiteme, Boniface & Wünscher, Tobias & Koellner, Thomas & Hellweg, Stefanie, 2016. "Pay the farmer, or buy the land?—Cost-effectiveness of payments for ecosystem services versus land purchases or easements in Central Kenya," Ecological Economics, Elsevier, vol. 127(C), pages 59-67.
    18. Jeremy Russell-Smith & Catherine Monagle & Margaret Jacobsohn & Robin L. Beatty & Bibiana Bilbao & Adriana Millán & Hebe Vessuri & Isabelle Sánchez-Rose, 2017. "Can savanna burning projects deliver measurable greenhouse emissions reductions and sustainable livelihood opportunities in fire-prone settings?," Climatic Change, Springer, vol. 140(1), pages 47-61, January.
    19. Gani Aldashev & Elena Vallino, 2018. "NGOs and Participatory Conservation in Developing Countries: Why Are There Inefficiencies?," Working Papers ECARES 2018-16, ULB -- Universite Libre de Bruxelles.
    20. Palmer, Charles & Taschini, Luca & Laing, Timothy, 2017. "Getting more ‘carbon bang’ for your ‘buck’ in Acre State, Brazil," Ecological Economics, Elsevier, vol. 142(C), pages 214-227.
    21. repec:gam:jsusta:v:9:y:2017:i:9:p:1542-:d:110344 is not listed on IDEAS
    22. Stefanie Engel & Charles Palmer, 2011. "Complexities of Decentralization in a Globalizing World," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 50(2), pages 157-174, October.
    23. Tacconi, Luca, 2012. "Redefining payments for environmental services," Ecological Economics, Elsevier, vol. 73(C), pages 29-36.
    24. Naughton-Treves, Lisa & Wendland, Kelly, 2014. "Land Tenure and Tropical Forest Carbon Management," World Development, Elsevier, vol. 55(C), pages 1-6.

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