We examine the emergence of land markets and their effects on forest land appropriation by farm households in Jambi Province, Sumatra, using micro-level data covering land use and land transactions for a period of more than 20 years (1992–2015). Based on a theoretical model of land acquisition by a heterogeneous farming population, different hypotheses are developed and empirically tested. Farm households involved in forest land appropriation differ from those involved in land market purchases in terms of migration status and other socioeconomic characteristics. In principle, these differences provide opportunities for market-induced deforestation. However, the appropriated forest land is not extensively traded, which we attribute to the lack of de jure property right protection and the resulting undervaluation in the market. While the de facto property right protection under customary law provides sufficient security within the village community, the sense of external tenure security is low when the land cannot be formally titled. Clearing forests for trading in the land market is, therefore, financially less lucrative for farm households than engaging in own cultivation of plantation crops, such as oil palm and rubber. We conclude that land markets did not have significant effects on deforestation. On the other hand, the emergence of land markets alone has also not been able to deter forest appropriation by local farm households.
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