Centralized versus Decentralized Control of Forest Use in a Federal Structure with Elite Capture

Abstract

The debate around centralized versus decentralized control of forest usually focuses on the incentive and information structures under these two forms of control. This paper however examines on a less analyzed feature, that of elite capture of the revenue generated out of forest use. In particular, I examine a scenario where the bureaucrats controlling forest management are corrupt, and also have significant influence at the central level. I find that state control leads to lower degradation if and only if the extent of elite capture is not too small. Further, if the central government controls the allocation of forest income among states, in addition to controlling the magnitude of forest use, then forest degradation is lower relative to the case when the central government controls forest use alone.