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A new social forestry program has been implemented in Java to overcome encroachment of state forests. In this program, the state and local communities jointly manage the state forests and share the benefits of increased forest resource stock and flow as a result of the management. This article aims to investigate the complete incentive structure of the social forestry program and how the incentive structure changes community member participation in forest management. Property rights transfers and economic analyses were employed to analyze the incentive structure. We conclude that although incomplete, the transfer of rights from the state to the community members is a useful approach toward establishing an effective incentive structure and provides a net gain to the community members. The extent of community participation, however, depends not only on the incentive structure but also on the social capital that exists in the community.
