ABSTRACT
Forestry activities are characterized by an array of complex institutional constraints and contractual arrangements. The new institutional economics (NIE) offers an appropriate framework for examining the intricacies of the institutional environment and contractual structures in the forest sector, and for understanding the implications of alternative institutional arrangements for economic outcomes and the behaviour of the contractual parties involved. The chapter provides an overview of the genesis, scope and main developments of NIE, with a particular emphasis on several important strands that include property rights and contracting, transaction cost economics, moral hazard and information and principal-agent relationships. A British Columbia case study is provided to illustrate how principal-agent (PA) theory can be applied to a problem in forestry. The NIE-PA analysis yields insights into the patterns of behaviour on the part of forest companies and other players, and the influence of institutional arrangements and policy choices on silvicultural outcomes.
