Profit sharing and agroforestry: a theoretical study of potential conflicts in managing illegal logging risk in tropical forests

Partnership programs have gained importance in forestry management. In Indonesia, profit sharing and agroforestry are examples of partnership programs between forest managers and local communities. In this paper, we analyze potential conflicts among participants in these programs. First, we derive a recursive formula to determine the future value of a compartment of plantation to the society, which includes both the forest owner and the local community. While trees are young, the land is also used for agriculture, which is an agroforestry program. When there is a high rate of future discounting and a high rate of natural disturbances, the society may find it profitable to continue the agricultural use of the land. Second, we calculate the profit for the forest owner and the local community separately. To prevent illegal logging, the owner shares a fraction of the profit obtained by selling logs with the local people, which is a profit-sharing program. Illegal logging greatly reduces the profit for the forest owner, especially when trees are tall. Illegal logging of old cohorts is harmful to the local people as well. In contrast, illegal logging of young cohorts provides profit to the local people because they will be hired to replant young trees. Our analysis shows an “overlooking period” in which a conflict of interest exists between the forest owner and the local community. We indicate that the overlooking period can be mitigated by coordination of the shared profit and the wage for the workers.