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

Decentralization reforms in Indonesia have led to local communities engaging in logging agreements with timber companies for relatively low financial payoffs and at high environmental costs. 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) the fact that 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.