Royalty Systems, Government Revenues, and Forest Condition: An Application from Malaysia

Gregory S. Amacher, Richard J. Brazee, Meindert Witvliet, Edward B. Barbier and Joanne C. Burgess


Royalty structure has been linked to deforestation through non-sustainable harvesting and high grading. Yet royalties are an important rent generation mechanism for governments. In this paper, a dynamic model of government policy choice is used to compare different royalty systems with respect to government revenue generation and high grading. Empirical analyses of the various royalty systems is then undertaken for forest concessions in Malaysia. One unique aspect of our study is an examination of how different royalty systems impact harvesting of high and low-valued timber species, government rent capture, and concessionaire profits. The results should help with future royalty design. (JEL Q23, Q28)

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