Vertical integration in Mexican community forestry

While research has revealed the role of common property in risk diversification, poverty alleviation and resource management, few studies identify how common property management systems fill that role uniquely where market mechanisms or private property rights fail. To address that gap, the present research develops a consistent framework for analyzing local level production where community organizations have vertically integrated into the wood products industry, using common property forest as a source of raw material. Based on an incomplete contracting approach, it is argued that vertical integration allows local stakeholders to guide development within their community, provided that marginal productivity attains a certain level. Empirical results using a survey of 44 community governance regimes in Oaxaca, Mexico, show that communities are more likely to integrate forward into timber processing activities when they achieve initial levels of human and and social capital and increase labor productivity through higher forest land endowments. The model is extended to demonstrate that economies of scope arise between community-level timber production and non-timber benefits.