Principal-agent relationship in policy implementation of the use of forest area for mining activity, Indonesia

Abstract

The use of forest area (UFA) is defined as utilization of a portion of forest land for any development purposes outside forestry without changing its function and designation. This study is aimed to explore the relationship of principal and agent in the UFA implementation. Based on the agency theory and using descriptive-qualitative methods, this study identified specific relationship characteristics, i.e. the lack of authority in agent selection, the domination of principal on information, the moral hazard behavior of both principal and agent, the higher risk assumed by the principal, and the poor implementation of incentive structure. The relationship patterns did not occur only between principal and agent, but also among different principals and between one agent and another especially in cooperation and conflict relationship. This study confirmed that better implementations of UFA are strongly influenced by the efficiency of contractual agreement, the principal control on the process of UFA implementation, the agent commitment on the agreed contract and the amount of transaction costs.