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The overall objective of this research was to determine whether and how the institutional environment
influences the establishment and performance of Community Forest Enterprises (CFEs) in Bolivia.
This study defines CFEs as organizations that: (1) manage collectively owned forests in name of all
community members and (2) follow forest management regulations established by the 1996 Forest
Law. The theoretical point of departure for this research is that the institutional environment can
both facilitate and obstruct CFE performance. Transaction costs, the costs of doing business, are
used as an indicator of the influence of the institutional environment. An enabling institutional
environment leads to low transaction costs and better CFE performance, whereas an obstructive
institutional environment creates higher transaction costs and poorer CFEs performance.
Four research questions have been formulated:
1. How have changes in land and forest legislation influenced forest use by local people in
Bolivia and how have these changes lead to the emergence of CFEs?
2. What contractual arrangements do Bolivian CFEs enter into and for what reasons?
3. How can the contractual arrangements between CFEs and their exchange partners be
characterized in terms of transaction costs? Are they cost effective, as predicted by
transaction cost theory? And how do these costs relate to the institutional environment?
4. How do transaction costs influence the functioning of the CFEs?
The research shows that the Agrarian Land Reform Law (INRA) and the Forest Law, both
enacted in 1996 have changed the use of forest resources considerably. Under these laws,
land and exclusive forest user rights were assigned to farmers and indigenous people and the
privately owned forest area increased at the expense of the forest area under state concessions.
For small and medium enterprises, that had difficulties in accessing timber resources under
the previous forest legislation, this represented an opportunity to directly negotiate access to
timber with private and collective land owners. Consequently, the number of actors involved
in timber extraction and processing increased considerably. Forest entrepreneurs (timber
processing enterprise, traders and forest professionals) started offering landowners (private
and collective) a range of services: to arrange logging permissions for them, extract the trees
and sell the timber. These entrepreneurs apply for the cheapest, most accessible and least
regulated type of small-scale logging authorizations from the Forest Service. Most farmers
and communities use this type of authorization to extract timber from their plots.
CFEs differ from other forest users because they base their logging operations on de jure
sustainable forest management plans and manage the forest collectively. The number of
communities with a CFE and an approved forest management plan increased from 0 to 100
between 1997 and 2006. Together the CFEs manage over one million hectares of forest.
Considering that most farmers and communities are enticed by timber buyers to apply for
small-scale logging authorizations, why do other communities decide to prepare large scale,
long term forest management plans?
The research shows that the emergence of CFEs is mainly a response to external incentives.
Communities with large quantities of good quality timber that require substantial investments
for extracting are attractive partners for private enterprises who may offer to develop a large
scale forest management plan for these communities (market assisted CFEs). Indigenous
communities with large forest areas that have been working with NGOs before may be offered
the opportunity to develop a forest management plan by an NGO (NGO assisted CFE). A
minority of the CFEs, located in regions where other successful CFEs are located have
developed large-scale management plans independently (self financed CFEs).
The source of financing for management plans is very influential in determining the type of
contractual relations that are established between the CFEs and the timber buyers, the Forest
Service and NGOs. Market–assisted CFEs that are indebted with the enterprises, sign long
term timber sale contracts, do not take part in forest management activities, hardly interact
with the Forest Service and have little knowledge about their rights and obligations. NGOassisted
and self financed CFEs sign short term timber sale contracts and frequently negotiate
with buyers over timber prices, the number of species, extraction activities and payment
schemes. They actively engage in timber logging and bureaucratic processes with the Forest
Service, although the extraction of timber is mostly carried out by the buyers.
Market assisted CFEs experience relatively low transaction costs compared to the NGO
assisted and self financed CFEs. This is because the market assisted CFEs outsource all
management activities whereas the other CFEs implement management activities themselves
and therefore interact with buyers, the Forest Service and NGOs on a more regular basis.
Transaction costs originate either from the time and resources spent on activities or from
dealing with problems. Market-assisted CFEs incur more transaction costs from dealing with
problems with the Forest Service and the market, and these costs remain constant over time.
The NGO-assisted and self financed CFEs incur higher transaction costs due to the time and
resources spent on transactions, the transaction costs they incur that originate from dealing
with problems reduces over time.
Four different indicators were used to analyze CFE performance: harvesting capacity, continuity
of logging operations, timber prices and a self assessment of accomplishment. The NGOassisted
and self financed CFEs score better on all these indicators. Regression analysis show
that CFE performance depends strongly on the time and resources the CFEs invest in market
transactions. The main influence of the Forest Service is on the continuity of the CFEs and
timber prices. NGO assistance enhances CFE performance because they enable the CFEs to
assume responsibility for forest management activities, sign short term timber sale contracts
and invest in their enterprises.
Three conclusions can be drawn from this study. First, the institutional environment in
Bolivia is not unambiguously enabling or obstructing for CFEs. Rather it is the combination of
institutional factors together with resource endowments and the location of the communities
that determine the performance of CFEs. Second, the institutional environment is, if not the
main determinant, then at least a very strong influence on the establishment and performance
of CFEs. CFEs with short term timber sale contracts can improve their performance by
investing time and resources in market transactions. Third, high transaction costs are not
always associated with poor enterprise performance as predicted by the theoretical framework
but can also function as an investment in future opportunities.
