BOGOR, Indonesia (16 May, 2011)_Once upon time there was a mountainous tropical island covered by forests rich in biological diversity. Recognizing the global value of the forests, the national government declared the area a national park.  Local communities, concentrated near the coast, considered the forested mountains to be sacred.  So although there was some illicit cultivation of steep slopes by recent migrants, and occasional hunting of rare birds for the illegal market, a conservation-oriented NGO found a strong basis for joint management of the protected area.

The NGO worked with the community and brokered an agreement with the forest department to set the national park boundary at the 300-meter elevation level with lower slopes managed as a buffer zone.  The agreement had been ratified and recorded on official forest department maps.

One day, a team fielded by the forest department arrived at the island in a boat filled with concrete milestones to demarcate the national park boundary.  The workers were rewarded based on the total length of boundary marked rather than the number of days in the field or the accuracy of the boundary marker placement.  Accordingly, they placed the markers around the island just above the high tide line to avoid lugging the heavy milestones up the steep slopes, or  cutting their way through dense vegetation at 300 meters, or digging holes for the markers in rocky rather than sandy soil.

The workers’ behavior was quite rational as a way of maximizing their reward per unit effort.  And while there was some risk that the deviation of their boundary from the official map would be detected, the risk of sanction was virtually zero. But by marking the boundary as they did, in one day they succeeded in destroying community support for the joint agreement brokered by the NGO, and created opportunities for forest department colleagues to collect bribes for ignoring the suddenly “illegal” settlements and cultivation on the island.

I share this story – a stylized synthesis of several examples I’ve observed, heard, or read about over the years – to illustrate the importance of internal institutional incentives for implementing innovations to improve forest management.  In this story, perverse incentives faced by field workers undermined a promising community-based conservation initiative.  But perverse incentives faced by individual employees or work groups are a common challenge across all levels and types of forest-related organizations.

Early in my career, I was part of a network of Ford Foundation program staff and grantees attempting to facilitate the “bureaucratic reorientation” of forest departments and irrigation ministries in Southeast Asia to support community-based approaches to natural resources management.  Our goals included changing armed forest guards into facilitators of forest-farmer groups, a process that is still underway in various forms a quarter-century later.  Only in retrospect did I recognize just how ambitious those goals were, and the degree to which success would require fundamental changes in how staff were educated, recruited, rewarded, and recognized.

Today, one of my greatest challenges in leading an international research center is to figure out how to translate our lofty externally-oriented commitments – such as ensuring that all of CIFOR’s research is aligned with clear impact pathways, and takes into account the different needs of men and women – into prosaic day-to-day planning, budgeting, and reporting disciplines to ensure that those commitments are met.  What is the appropriate mix of carrots and sticks?  What kinds of recognition and reward are most effective?  How can new information and communication technologies be mobilized to strengthen positive incentives and reduce those that are perverse?

The challenge of aligning internal incentives with external goals is even greater in large, complex organizations with multiple (and sometimes conflicting) objectives.  An evaluation of the World Bank’s forestry lending more than a decade ago concluded that the Bank’s forest policy – which precluded finance of logging in primary forests – had had a “chilling effect” on the Bank’s engagement in the sector.

Others have suggested that fear of running afoul of the Bank’s other safeguard policies (such as those related to indigenous peoples), the risk of being subjected to an Inspection Panel investigation, and long preparation time for forestry loans have similarly discouraged individual Bank staff members and country teams from working with borrower governments to tackle forest-related issues.  Just as with the work crew placing boundary markers, without countervailing positive incentives or accountabilities, avoiding such risk and extra effort might well be rational.

A new evaluation of the Bank’s engagement in the forest sector is just getting underway. I hope that the team will focus not only on external challenges and opportunities for the Bank as it strives to make a positive difference for the world’s forests, but also on the internal factors that are needed to reward Bank staff for acting on those opportunities in an appropriate manner.

The world is gradually beginning to recognize the value of forests as providers of rural livelihoods and ecosystem services, and not just timber. And yet most forest institutions were established in an era when their roles were focused on law enforcement and state revenue generation.  Reorienting these bureaucracies to provide effective support to the implementation of Reduced Impact Logging, REDD, community-based forest enterprise, or any number of other innovations is as important to their success as the policy changes and pilot project demonstrations that occupy most of our attention.

I suspect that there are many lessons to be learned from institutional reform in other sectors, ranging from education to policing.  I further suspect that there is need for a research agenda to address the challenges peculiar to reform of forest-related organizations.  We should get on it.

The bottom line is that without the right incentives within organizations to support implementation on the ground, the most elegant technical innovations, economic instruments, and governance arrangements to improve forest management are doomed to unhappy endings.