Royalty systems, government revenues, and forest condition: An applicationfrom Malaysia

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 po licy choice is used to compare different royalty systems with respect to go vernment revenue generation and high grading. Empirical analyses of the var ious 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, governmen t rent capture, and concessionaire profits. The results should help with fu ture royalty design.