This study aimed to analyze policy effectiveness of loan for delaying timber harvesting for smallholder private forest business (Pinjaman Tunda Tebang Hutan Rakyat; hereinafter

Three years since its establishment in 2010, the forest management unit (Kesatuan Pengelolaan Hutan, KPH)-Tasik Besar Serkap (KPH-TBS) in Riau Province-Indonesia has not been operated yet due to institutional problem. Therefore, the review on the institutional handicap is necessary. This study uses the Ostrom's Institutional Analysis and Development (IAD) Framework to analyze the policy implementation of KPH-TBS development. Analysis was conducted to describe the conditions of exogenous factors and the action arena that obstructing the policy implementation by Riau provincial government (RPG). Conceptually, the policy of KPHs development is institutional changing processes, which are changes in the value system and forest governance. The research found problems that became disincentives on biophysical conditions, such as problems on paradigm, forestry bureaucracy culture and several weaknesses in the rules in use. In addition, structural approach and physical assistance were mostly used by national government for its provincial government. In contrast, knowledge dissemination, communication and mutual trust building were still limitedly used. Former approaches do not address the needs of RPG for information and understanding regarding to the development of KPH. RPG responded to this situation slowly and lack of willingness to cooperate. They took the policy of KPHs development as a mere obligation, and did not get motivated to move by themselves. In addition, the reluctance to cooperate was also caused by the presence of conflict of interest in several government officials. Based on this research, national government need to changes the way of thinking that regulation is not the only instrument to guide the behavior of local participants. Although still needs to be repaired, it must be accompanied by improving of knowledge dissemination, communication and mutual trust building. These actions are highly required not only for resistance solution, but also for controling the paradigms transformation process and cultur of local participants in line with composed new values in the KPH concept.

Forest ecosystems, including plantation forests, provide goods and services that are marketable and nonmarketable. Positive externalities produced by forest ecosystems are rarely considered in pricing of marketable products that result in economic inefficiencies. Internalizing externalities is required to improve the economic efficiency. The traditional way to internalize an externality is by providing subsidies or imposing taxes. Recently, payments for environmental services are receiving more attention as an instrument for internalizing externalities provided by forest ecosystems. This promising alternative to improve our environment needs to be studied more extensively. In this paper, it can be indicated theoretically that the Pigovian tax, as a traditional way of addressing environmental problems, is able to mimic the result derived from the employment of environmental services payment. The difference is that environmental services payment improves the welfare of environmental service producers, whereas the Pigovian tax reduces it. A positive Pigovian tax increases the optimal rotation, which is positively associated with environmental improvement, but certainly reduces forest owner's welfare. This difference should be taken into account in the public policymaking so that perverse incentive may be avoided. Payment for environmental services as an additional income to forest growers, not as alternative source of income, is a potential tool to address simultaneously issues of environment and poverty that are frequently contested.

Triggered by the article titled “The tragedy of the commons” by Hardin, a collectively‐managed resource (CMR) emerges and becomes a highly fruitful discussion topic. Furthermore, Ostrom augments the topic and demonstrates that the utilization of a CMR should not always result in a tragedy. However, the theory used to justify Hardin's tragedy differs from the one used to justify Ostrom's comity; Hardin's tragedy is justified by one‐shot prisoners' dilemma (PD), while Ostrom's comity is justified by infinitely repeated PD. The discussion in this study shows that Hardin's tragedy and Ostrom's comity can be supported by the same theory. An infinitely repeated PD complemented with a likelihood of making an error is used to reach the conclusion that the occurrences of Hardin's tragedy and Ostrom's comity are just a matter of probability. Recommendations for Resource Managers To avoid as far as possible placing divisible resources under the common property regime. To develop effective monitoring systems for resource management under the common property regime to stop deviations as early as possible. To facilitate resource users involved in resource utilization under the common property regime to meet and to communicate regularly to increase mutual trust.

Distortionary levy applied uniformly to all diameter classes of logs from logging natural forest can lead to inefficiencies; certain diameter should be left in the field because it is not economical to be used. Win-win or Pareto improving solution can be achieved if the government is more flexible. Social welfare is higher because of the waste that can be utilized to create employment, production and additional benefits for employers, as well as revenue for the state. Even if the levy rates are forced to zero for small-diameter timber, governments is actually not harmed at all because from the beginning the government does not get any revenue from small timber that is left in the field as waste. In scarcity situations of timber from natural forests, it is desirable if the government is considering differentiating charges in order to reduce or possibly eliminate the volume of waste generated by the levy. In general, tariff differentiation done in the form of higher tariffs for higher diameter logs. If possible, the lowest diameter limit of logs is forced down to its technical limits. That is, the processing tool that will determine how the minimum diameter logs can be processed profitably.