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Transaction Cost Analysis of Upstream-Downstream Relations in Watershed Services: Lessons from Community-Based Forestry Management in Sumatra, Indonesia

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  • Arifin, Bustanul

Abstract

This study analyzes transaction costs occurred in the existing set-up of upstream-downstream relations and reward mechanisms of the watershed services in Sumatra, Indonesia. The rewards are manifested through property right reforms in terms of "recognition" and "loss of fear of eviction" among local communities to utilize land within the "protection forest", such as implemented under the community-based forestry management (CBFM) policy. The study sites of Sumber Jaya watershed in Sumatra, Indonesia has been notoriously known as a benchmark for conflict of watershed functions between the state and the society, and among stakeholders such as coffee growers, domestic water-users, hydroelectric power company, etc. Estimated transaction cost to implement the rewards is US$ 55 per household, a relatively high cost for rural standards. The component consists of costs of searching information (70%), organizing the group (27%), and enforcement of working rules and regulations (3%), implying a non-efficient economic organization of the society and non-clear policy structures at regional and national level. Roles of intermediaries such as NGO (national and international) are extremely important to implement the negotiation support system and develop multi- stakeholders strategy to reduce transaction costs, especially to ensure conflict resolutions, improve trusts and shared responsibility to achieve more sustainable resource management.

Suggested Citation

  • Arifin, Bustanul, 2006. "Transaction Cost Analysis of Upstream-Downstream Relations in Watershed Services: Lessons from Community-Based Forestry Management in Sumatra, Indonesia," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25788, International Association of Agricultural Economists.
  • Handle: RePEc:ags:iaae06:25788
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    File URL: http://purl.umn.edu/25788
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    References listed on IDEAS

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    1. Elinor Ostrom, 2000. "Collective Action and the Evolution of Social Norms," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 137-158, Summer.
    2. Ronald H. Coase, 2000. "The new institutional economics," Chapters,in: Institutions, Contracts and Organizations, chapter 1 Edward Elgar Publishing.
    3. Mburu, John & Birner, Regina & Zeller, Manfred, 2003. "Relative importance and determinants of landowners' transaction costs in collaborative wildlife management in Kenya: an empirical analysis," Ecological Economics, Elsevier, vol. 45(1), pages 59-73, April.
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    Cited by:

    1. Nguyen Thi Y Ly & Pham Thanh Nam, 2016. "Payment for Environmental Services in Southeast Asia: A Regional Review of Policy Implementation," EEPSEA Research Report rr20160340, Economy and Environment Program for Southeast Asia (EEPSEA), revised Mar 2016.
    2. repec:raf:wpaper:b15527 is not listed on IDEAS
    3. Arifin, Bustanul & Swallow, Brent M. & Suyanto, S. & Coe, Richard D., 2009. "A conjoint analysis of farmer preferences for community forestry contracts in the Sumber Jaya Watershed, Indonesia," Ecological Economics, Elsevier, vol. 68(7), pages 2040-2050, May.
    4. Huong, Tran Thi Thu & Zeller, Manfred & Hoanh, Chu Thai, 0. "The ‘Five Million Hectare Reforestation Program’ in Vietnam: An Analysis of its Implementation and Transaction Costs - A Case Study in Hoa Binh Province," Quarterly Journal of International Agriculture, Humboldt-Universität zu Berlin, vol. 53.

    More about this item

    Keywords

    Environmental services; transaction costs; Indonesia; Resource /Energy Economics and Policy; Q15;

    JEL classification:

    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment

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