Multiple products, community forestry and contract design: The case of timber harvesting and resin tapping in Honduras

KEYWORD: Community-based Natural Forest Management, Central America. Central America, Honduras, community forestry, fuelwood, incentives, non-timber forest products, conservation, fire, forest degradation, forest reserve, contracts, forest concession, institutions, property rights, community participation, theft, economic analysis, journal. SUMMARY: A popular response to deforestation and poor utilization of forests in developing countries is to increase the participation of local communities in managing state-owned forests. To encourage protection of the resource from theft and fire, local communities are sometimes granted exclusive rights to collect firewood and non-wood products. State agencies, however, usually retain the rights to harvest the mature timber, which has led to conflicts when harvesting interferes with the community's usufruct rights. In response, a number of different contractual arrangements have been tried, offering the community either a share in the value of the timber or the right to harvest at a predetermined charge. The contract assigns different groups specific rights and residual economic benefits and designates the amount of residual benefits each is to receive. Importantly, opportunistic behavior must be controlled to maximize the resource rent value. As a general rule, maximization requires that the greater a party's ability and inclination to affect the returns to an asset, the greater the share of the residual that party should receive.The author analyzes production trade-offs and contracting problems presented by a combination of usufruct rights to collect pine resin and the Honduran government's claim to charge for timber harvesting rights. The trade-offs occur as tapping deep into the tree generates a greater flow of resin, but can substantially damage the tree's sawtimber value. The analysis indicates the contract fails to establish as residual claimant (beneficiairy) that party possessing greater ability to affect resource use (resin tappers), and therefore fails to maximize the rental value of the forest. This result has broader implications for community forest programs.