Principal-agent relationships in rural governance and benefit sharing in community forestry: Evidence from a community forest enterprise in China

Before the early 2000s, a considerable number of collective forests in China were managed by common-property community forest enterprises (CFEs), which allocated minimal revenue to villagers. Existing literature attributes farmers' limited access to CFE revenue to ambiguous tenure, rent-seeking village cadres, and high timber taxes and surcharges. Using the longitudinal case study method, we examine the reasons for farmers' low earnings from CFEs. We found that villagers earned little from CFEs because revenue was diverted to non-forestry purposes, and this diversion needed to be understood under the dual principal-agent relationships in rural governance and the multiple tasks assigned to CFE managers. The CFE managers, as agents of the villagers assumed the dual responsibility of administering timber production and managing community affairs. Moreover, under China's political regime, the CFE managers are the agents of the township government and are obliged to fulfill various administrative and fiscal tasks. To fulfill community governance obligations and to finance government-assigned tasks, the CFE managers had to divert revenue to non-forestry uses instead of allocating revenue to the villagers. To enhance the performance of CFEs, we recommend that the government detach community governance responsibility from CFE managers, reinforce the autonomy of rural communities in forest management and community governance, and infuse more resources to rural communities.