ABSTRACT
Vietnam’s forestry sector faces unique governance challenges due to its highly fragmented smallholder ownership, contrasting with concession-based models. As international markets increasingly demand sustainability certifications (eg FSC or PEFC), cost and complexity deter most smallholders, prompting wood processing firms to finance certification themselves. This creates a ‘reverse hold-up’ risk, where holders may side-sell at harvest, compounded by weak legal enforcement. Drawing on transaction-cost economics and network theory, we employ a relational contracting lens to examine how such agreements persist. We analyze 15 key stakeholder interviews and six documents. We find that contract stability rests less on legal stipulations and more on relational mechanisms: flexible contingent terms, co-investment in technical capacity, and embedded governance via local authorities and social networks. These informal institutions and networked enforcement substitute for formal mechanisms, enabling sustainable long-term contracting in emerging markets.
Velasquez, Santiago and Nong, Nhu-Mai Thi and Nguyen, Phuong Quynh and Venkatesh, Sundar, Relational Contracting for Sustainable Forestry: An Exploratory Study of Certification-Based Agreements in Vietnam. Posted to SSRN 13 June 2025.
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