Shareholder perceptions of individual and common benefits in Swedish forest commons

: In the period 1861–1918, thirty-three commons were established in Northern Sweden. This was linked to the finalisation of the Great Redistribution of Forest Holdings in Dalarna and the delimitation process in Västerbotten and Norrbotten. They were intended to serve as an instrument for improved and sustained forest production, the viability of farmers and the liveability of the rural communities in the areas where they were established. The aim of this paper is to describe the results of a study examining how three of these forest commons, one from each region, have benefitted the local shareholders and their community. The perceptions among forest common shareholders were assessed using a questionnaire. The study also assessed economic impact on shareholders in terms of extent and use of the dividend from each of the commons for the period 1958– 2007, highlighting the extent of the economic support to individual shareholders and to the local community. Results reveal large differences between the three cases; there was a positive correlation between the extent of the economic support and contentment among the shareholders.

Introduction
In the literature, commons are traditionally described as resources where usage rights are shared according to set principles, often covered by legislation, and among a defined group of members; however, due to the subtractability of the resource and the difficulty (or high cost) of exclusion, commons are considered a separate class of goods, different from pure public goods or the club goods (Becker and Ostrom 1995;McKean 1998). Furthermore, studies of common-pool resources in numerous settings, particularly of those that have survived for a long period, have shown that commons can perform as well as or even better than public and private resource management institutions under certain conditions, which have been promulgated as the "design principles" for successful commons (Ostrom 1990;McKean 1992McKean , 1998Becker and Ostrom 1995). Box 1 lists the attributes associated with the successful common property regimes, which also correspond to the "design principles" (Ostrom 1990;McKean 1998). One of the key characteristics of a successful/successfully-governed common is considered to be the equity or perceived fairness in sharing of the benefits and the costs within its members/shareholders (Ostrom 1990;McKean 1998). In many of these successful commons studied, sharing of the benefits and costs were linked to the size of the shareholding or on the private asset holding of the household (McKean 1992(McKean , 1998, as is also the case in the Swedish forest commons (Carlsson 1997). Moreover, as McKean (1998) points out 'distribution of decision-making rights and use rights to co-owners of the commons need not be egalitarian but must be viewed as "fair" (one in which the ratio of individual benefit to individual cost falls within a range they see as acceptable)' for a common to be successful. However, previous studies on the Swedish forest commons have not only pointed out the diminishing role of the shareholders in terms of governance/management (i.e. decision-making rights) of their commons (Stenman 2009;Holmgren et al. 2010), but they have also pointed to the fact that the shareholders in Swedish forest commons do not bear costs proportional to the benefits they obtain (Carlsson 1997). In this context, it is therefore relevant to evaluate the outcomes that members perceive, as well as the extent to which commons may contribute to not just their own welfare but that of the people who are not part of the commons, for example, by supporting public goods (cf. Short 2008). For instance, Short notes that common land in the UK has recently come to be "prized for its public good functions, a relatively new concept for commons generally and one with a different economic meaning" (Short 2008, 207). In addition, he notes, "commons are increasingly important to a number of 'new' rural objectives and that the associated policy developments may hold an important message for sustainable multifunctional land management more generally" (Short 2008, 193).
However, the Swedish concept of Forest Commons (FCs) has largely been institutionalised by the state to provide goods and services not only to FC members but also to the public. FCs in Sweden are thus more akin to communitybased enterprises in that they are based on utilitarian economic models but have social goals (cf. Berkes and Davidson-Hunt 2010) and can be compared to the land management by village corporations e.g. in Alaska (Dayo and Kofinas 2010), although the bylaws covering Swedish FC were, in some cases, established more than 150 years ago. The Swedish FC originated from shares in the ownership of private forests, providing a resource managed in common and thereby contributing to social goods rather than representing only individual goods.
There are 23.6 million ha of forest in Sweden, of which 50% is owned by some 336 000 non-industrial private forest (NIPF) owners (Anon 2008). Twenty-five thousands of these owners are also shareholders in one of the 33 FCs, established in the period 1861-1918 in the interior of northern Sweden (Holmgren 2006). These FCs cover 537 000 ha of productive forestland of which 410 000 ha belong to NIPF owners. Forest owners hold shares in the commons, and these can only be transferred together with the private estates to which the shareholding is tied. The shareholder rights, including the right to hunt and fish in the FC, are retained even after the shareholder has moved away from the community (Allmänningsutredningen 1983). In each FC, a board elected by the shareholders manage (make decisions regarding) the forests with support from a professional forester. Indeed the FCs are required to employ professional foresters for the actual work, and they execute the agreed actions regarding the forests. Shareholders' voting rights with respect to management of the FCs are, in general, proportional to the size of their shareholdings, although some FCs have introduced by-laws designed to limit the dominance of the larger landowners.
At their establishment, the Swedish FCs were supposed to meet a number of objectives -these, along with the means of achieving them have been discussed by Box 1: Attributes of successful common property regimes (adapted from McKean 1998). These also generally correspond to the "design principles" for long surviving commons (Ostrom 1990) 1. Recognition of the local rights to organise/devise own resource institutions 2. Clearly defined boundaries of the resource 3. Clearly defined membership criteria for use of the resource 4. Right to modify the use rules over time [corresponds to 'collective-choice arrangements' in Ostrom (1990)] 5. Congruence between use rules and local (environmental) conditions 6. Clear and easily enforceable use rules 7. Monitoring of the rules and graduated sanctions in case of infractions 8. "Fair" distribution of rights and resources 9. Inexpensive and efficient conflict-resolution mechanisms 10. Nested, but devolved institutions for large resource systems Liljenäs (1977Liljenäs ( , 1982Liljenäs ( , 1983, the Ministry of Agriculture (Allmänningsutredningen 1983), Stenman (1983), Kardell (1991Kardell ( , 2004, Carlsson (1995Carlsson ( , 1999Carlsson ( , 2000Carlsson ( , 2001, Ericsson (1997) and Pettersson (2003), among others. A summary of these aims and means is presented in Box 2. No ranking of their importance has been attempted, since the aims are closely interconnected.
As shown in Box 1, one reason for establishing the Swedish FCs was to improve the quality of life, through forest-related activities, in the local communities in which they were established. The means to achieve this were by improving the local economy, providing employment, incentives to local agriculture and forestry, and supporting the provision of common goods in the local community (e.g. social care, a priest and a doctor, and bringing electricity to rural areas). The overall intention was to create places where people would like to work and live.
Therefore, the interaction between individual (private) benefits to commons' members and to the wider community is relevant in the Swedish case in particular. Moreover, we expect there to be differences in shareholders' perceptions of FC contributions, advantages and disadvantages, and that the Swedish FC may illustrate the division between a focus on common and on individual aims both at the shareholders' level and at the FC level. More specifically, we expect to find shareholders' perceptions of the benefits linked to the individual benefits they derive from the commons, and as such we expect economically successful FCs to have a more engaged/participatory shareholder base than those not performing as well. This issue has not received much attention in previous studies of the Swedish forest commons. Thus, the main purpose of this study is to assess the extent to which the Swedish FC, like a community-based enterprise, supports shareholders' private interests and at the same time promotes public goods relevant to the rural society. Furthermore, given the nature of their establishment (top-down), we assess, using the relevant attributes of successful commons (Ostrom 1990;Becker and Ostrom 1995;McKean 1998) and by looking at shareholders' perceptions as well as actual outcomes in terms of revenues and dividend shared in the past 50 years, whether the FCs in Sweden can be considered successful.

Establishment and development of Älvdalen, Jokkmokk and Tärna-Stensele Forest Commons
The FC in Älvdalen was established in 1885 and the Jokkmokk FC in 1889 (Holmgren 2006). Both of these FCs are composed of a 25% share of each farmer's originally allocated land, amounting to 54 000 ha of productive forest land in Älvdalen and 61 120 ha in Jokkmokk (Älvdalen FC homepage 2009;Jokkmokk FC homepage 2009). In 1906 the earlier delimitation rules (SFS 1873) were changed in the 'Act Relating to Establishment of Commons by Coercion' (SFS 1906, 36). From then, the official view was that the state was the owner of the land to be donated during the delimitation process (Stenman 2009). Hence, the state could by-pass earlier delimitation rules concerning the size of allocated forest land, making it easier to establish an FC without the landowner's consent. However, the delimitation process was by then almost finished, essentially only the inner regions of Västerbotten remained unallocated. Among the remaining areas were the western half of Stensele parish and the whole of the adjacent Tärna parish. The forest land in Tärna was of insufficient size and of poor quality. It was therefore decided to join the Tärna FC with the more fertile forest land in Stensele parish. The FC established in 1918 was therefore called the Tärna-Stensele FC (TSA) and is composed of 45-50% of the farmers' allocated land, in total about 38 400 ha (TSA FC homepage 2009). The joining of the two FCs went against the wishes of the shareholders from Stensele (Stenman 2009). Furthermore, the shareholders from Tärna were in the majority and, with the establishment of the TSA, obtained fishing and hunting rights in Stensele parish. In 1971, the two parishes were amalgamated into the municipality of Storuman. TSA is 96% owned by NIPF shareholders, of whom 48% are resident. Since the resident NIPF owners generally have larger shares in the FC, they own about 61% of it. This is also the FC, among the three examined, where the number of shareholders has increased the most, from 449 in 1923 to 1300 in 2008.
At the time of its establishment, there were 1199 shareholders in the Älvdalen FC, a number that has today increased by 55% to 1857. The number of shareholders has been higher, but, through a project called "voluntarily exchange of land" ("frivilligt markbyte"), shareholders have been helped by the FC to find solutions to issues concerning multiple and/or unclear ownership, and to exchange land. The aims of the project have been to improve the layout of the land and to increase productivity. According to the shareholder register, 824 (44%) shareholders were resident at the time of our study.
The number of shareholders in the Jokkmokk FC is currently 896. The largest owner is the forest company SCA, which is not a NIPF and owns more than 50% of the shares. The municipality of Jokkmokk has experienced a decline in population of 53% over the last 50 years and today about 454 NIPF shareholders (who own 29% of the FC) are resident within the municipality. In total, NIPF shareholders own 45% of the FC. Even though SCA is a majority owner, it only has one representative on the board and its dividend is limited to 25% of the general forest subsidy. This results in a proportionally larger share of the dividend for the NIPF shareholders.

Study areas and research methods
The forest commons selected for this study: Älvdalen in Dalarna, Jokkmokk in Norrbotten, and Tärna-Stensele in Västerbotten, are three of the major forest commons in Sweden. The selection was based on their relative similarities (in size and geographical position as foothill forest with relatively low site productivity of about 2.5-3.8 m 3 /ha/year within their regions) as well as their relative differences (time of establishment, the principles for distribution of the dividend, and the differing share of NIPF-ownership). The government regulates the FCs more strictly than the individually owned and managed NIPFs (Holmgren et al. 2010), although there are regional differences in the level of government involvement. For example, Västerbotten has been considered the most restrictive and Dalarna (previously Kopparberg) the least (ibid). Besides the national legislation, each FC also has its own specific by-laws. These are authorized by the County Administration, which regulates the direct management of the FCs (Carlsson 1995). Another important difference between the regions concerns the stipulations and practices developed in relation to the use and distribution of the dividend (in Swedish, "utdelning") from the commons. The dividend should here be understood as being the part of the annual profit (before taxation) that is distributed to the shareholders or to common goods. The FCs, in general, practice a supportive subsidy system whereby profits and subsidies are distributed to the shareholders on the basis of investment in and management of the estates connected to the FC shareholding.
Here, subsidies are given mainly for local agriculture (e.g. veterinary costs and milking machines) or forestry (e.g. seedlings, management plans), and also to local public bodies (e.g. for roads, schools, sports and cultural activities) (SFS 1952;Carlsson 1995). FCs in the county of Västerbotten have traditionally been allowed to distribute profits as cash payments to shareholders and continue to practice this system. In line with early directives, these payments are proportional to shareholder ownership. There has also been a move towards this system in Norrbotten, in the form of the general forest subsidy ("förstärkt skogsvårdsbidrag"), although this is split equally among shareholders. In both cases, the payments are made to all shareholders regardless of their place of residence (SFS 1952). In terms of socio-demography, all three municipalities are characterized by low population density and out-migration, low educational standard and relatively high rate of employment in forestry and agriculture (Statistics Sweden 2008).
As the main focus of this study is on the shareholders' perceptions regarding the individual and common benefits from their forest commons, this study employed a short questionnaire survey to obtain information on shareholders' assessments of the contribution of the forest commons to themselves and to their community (common benefits), including monetary contributions. The questionnaire survey sought to elicit actual/stated benefits (and costs) as well as perceived benefits (and costs) at individual and community level from the respondents. Thus, perceptions of support as well as the extent of economic and other benefits and costs are assessed for the three forest commons studied. In addition, we compare the amount of the dividend from each FC, and its distribution, over the last 50 years to add to our analyses of the survey results. The value, distribution and use of the dividends were assessed on the basis of the individual FC management plans and reports for the period 1958-2007. It was not possible to obtain the required figures from these documents for the period 1958-1967 for Jokkmokk. Instead, the data reported here for this period are from Liljenäs (1977). While comparing the economic performance between these three FCs, it is important to note the differences between the three FCs studied on how they spent their revenue, both as subsidies and cash dividend to individual shareholders and on common goods and services. However, considering the large differences between Älvdalen, Jokkmokk, and TSA, we do not believe this minor shortcoming adversely affects the overall picture presented. For the ease of comparison, the values presented in the results are given in terms of 2006 prices.
To maintain the local perspective, only resident shareholders in the three FCs were included in the study. The shareholders were divided into three strata based on the size of their individual share in each of the FC: the 25% largest shareholdings, the 50% intermediate, and the 25% smallest shareholdings. Each stratum was further split into female and male shareholders. Thus, shareholders for each common were divided into six strata. The purpose of stratification was to make sure that the number of large shareholders and women would be large enough to perform further analysis of the impact of holding size and gender, however not within the scope of this article. Each group was limited to a sample of 50 individuals, selected by uniform random sampling. As some of the groups turned out to contain fewer than 50 shareholders, every individual belonging to the group was chosen. This was also taken into account in the statistical calculations. In total, 862 questionnaires were sent out in March 2009. After two reminders, 423 questionnaires were returned and the results are thus based on a total response rate of 49%. At the stratum level the response rate varied substantially, from 23% to 65%, and at the FC level from 44% in Jokkmokk to 53% in Älvdalen. The response rate for women was 48% compared to 50% for men. Although the response rate may be considered low, it should be noted that the responses represent 22% of the actual population.
The data from the questionnaire survey were first entered, verified and coded on a spreadsheet. In line with the stated research objectives, the shareholder responses regarding various aspects of management and benefits sharing from their FCs were then analysed and, more importantly, compared across the three FCs. We primarily use cross tabulation of the responses (counts) with FCs as the grouping variables to compare shareholders' responses to various aspects of their participation and perception of benefits and disadvantages from their FCs. The comparison in responses across the FCs and the test of significance (c 2 ) were done in STATA 11 (StataCorp 2009).

Stated participation in, and utilisation of the FC
About 19-43% stated participation in meetings, with the highest proportion of participants in Jokkmokk and the lowest in TSA, with statistically significant difference between the FCs overall (Table 1). Between 9 and 32% participate in excursions, courses and the like (the most in Älvdalen, the fewest in TSA, with an overall significant difference between the FCs). Utilisation of the FC mainly took the form of hunting, fishing and outdoors activities, however, the proportion of shareholders making use of these services varied significantly between the FCs (Table 1). Pairwise comparisons also showed significant differences between the three FCs for most of the activities/sources of benefits, however, it was clear that Älvdalen and TSA had significantly larger differences than Älvdalen and Jokkmokk, and Jokkmokk and TSA. The economic dividend was either a cash payment or a grant contribution (depending on regulations of the individual FC). The shareholders in Älvdalen (and also to some extent in Jokkmokk) also stated indirect benefits from the support to local sporting and other associations, roads, schools and public meeting rooms. Very few suggested that they have no contact with or benefit from the FC, although a small proportion of uninformed respondents exist (indicating that not all shareholders are aware of benefits from the FC). Overall, these results suggest that most shareholders receive some benefit from the commons, with a smaller portion being active within it, and that the benefits range across the scope of individual to public services. Moreover, it is important to note that participation in and utilisation of services/benefits from the three FCs varied significantly.

Perceived private and public benefits of the FC
In terms of shareholders' perceptions regarding the benefits from their FCs, we see some significant differences between the three FCs, for both individual and common benefits (Tables 2 and 3). A number of perceived individual benefits by the shareholders were actually associated with the public goods, particularly in Älvdalen. The shareholders in that FC reported investment in roads and other local public goods, employment opportunities together with support for management of their own properties as the most important outputs of the FC (Table 2). In Jokkmokk shareholders stated that support for management of their own property and support for hunting, fishing and recreation were the most important benefits from their FC. The latter was also considered most important by TSA shareholders, while no other alternatives were indicated as an advantage by more than 40% from this FC. However, the second most frequently listed advantages of TSA FC membership were income and management of part of the forest property without any requirement for personal involvement. Overall, a significantly larger proportion of respondent shareholders from Älvdalen and Jokkmokk perceived benefits from their FCs in different ways compared to those from the TSA (Table  2). However, very few respondents recognized no advantages at all. These results indicate that public goods are the most important output in Älvdalen, while support for managing individuals' forest properties is considered important in all three commons, but more so in TSA.
With regard to disadvantages perceived to be associated with FC membership, while about 73% of shareholders in Älvdalen perceive no disadvantages, 15% still note that it is difficult to get shareholders to pull in the same direction, 5% that the distance between management and shareholders is too large, and 4% report lack of control of their share as a negative factor. In Jokkmokk, 70% of respondents perceive no disadvantages from the FC, with 12% reporting the difficulty in getting the shareholders to act for a common goal a major disadvantage. TSA respondents, in contrast to the other two FCs, had a rather different view of their FC with 45% reporting difficulties in getting shareholders to act for a common goal as a major disadvantage, followed by 20% citing too little profit from the FC, 16% citing lack of control on their share in the FC, and 15% stating too many shareholders as some of the major disadvantages of their FC. Only 32% of the respondents in TSA perceived no disadvantages from their FC. In addition, 13% of the TSA respondents perceived the rules, laws and by-laws related to their FC as a major disadvantage, while 9% thought there was too large a distance between the shareholders and the manager. To relate these perceived advantages and disadvantages, including potential impacts on individual property, to those perceived regarding general contributions to development in the municipality, resident NIPF shareholders were asked about community-level benefits they associate with their FC. The results are presented in Table 3.
The responses indicate several differences between the three FCs (Table 3). The majority of respondents from Älvdalen (64%) and Jokkmokk (57%) associated their FC with contributions to the local economy; the figure was much lower in TSA (38%) -a statistically significant difference between the FCs (Table 3). Of the respondents from Älvdalen, 89% reported that the FC contributed to the roads. The figure is significantly lower for Jokkmokk and TSA at 45% and 31%, respectively. Similarly, significantly larger proportion of shareholders from Älvdalen associated their FC with promoting environmental and cultural values as well as overall wellbeing locally compared to those from Jokkmokk and TSA (Table 3). Finally, the respondent shareholders were also asked to indicate their opinions on various statements related to their FCs in order to gauge their overall view (Table 4). Corresponding with our findings presented above, the TSA shareholders seemed to have a less positive opinion of their FC since many stated that they found the statements only 'partly true' or 'not true', or that they did not have any opinion. Generally, the respondents from Älvdalen FC exhibited the highest level of agreement with the statements and respondents from TSA the lowest. Most shareholders in Älvdalen and Jokkmokk (85% and 83%, respectively) fully agreed with the last statement, "I am very content to be an FC shareholder", compared to only about half of the shareholders in TSA (Table 4). However, only a small number of the TSA shareholders (7%) reject this statement as "not true". Even for statements related to their individual/personal gains from their FCs, significantly larger proportion of respondent shareholders from Älvdalen and Jokkmokk had favourable response compared to those from the TSA (Table 4).

The dividend -its extent and use
By far the largest dividend per hectare among the three FCs was in Älvdalen FC during the entire period 1958-2007 (Figure 1). Älvdalen FC has three main income-generating streams: forestry, capital investments and hydroelectric energy production. The total amount distributed in Älvdalen increased considerably in the last decade. In contrast, the dividend per hectare in Jokkmokk and TSA has stayed more-or-less the same during the same period, with some decline after 1987.
The distribution system applied to the Älvdalen FC is such that the entire dividend stays within the municipality, either for common goods or to subsidise expenses incurred on the shareholders' estates. In total, Älvdalen FC has distributed around 615 million SEK (based on 2006 prices, 1 SEK approx. 0.15 USD) over the last 50 years, of which 226 million SEK was distributed during the most recent decade. This corresponds to a contribution of 5053 SEK/year to common goods from each shareholder. In addition, the FC subsidizes the shareholders for activities on their estates amounting to, annualy on average, 7141 SEK per shareholder. Thus, for the last 10 years the FC has distributed, on average, 12 194 SEK per shareholder annually, corresponding to 430 SEK/ha/year (Figure 1). The second largest dividend was from Jokkmokk FC; during the last 50 years the FC has distributed about 228 million SEK. For the last 10 years, the major shareholder, SCA, has received about 600 000 SEK annually and the NIPF shareholders 1.8 million SEK as general forest subsidy (equivalent to 2020 SEK/NIPF-shareholder/year). In addition, 1.9 million SEK has been distributed annually as subsidies to the NIPF shareholders (2168 SEK/NIPF-shareholder/ year). Thus, for the last 10 years the FC has distributed, on average, 4188 SEK per NIPF shareholder per year, which corresponds to 70 SEK/ha/year (Figure 1). Leakage of profits out of the FC occurs mainly through the dividend distributed as general forest subsidy to non-resident shareholders, including all the money distributed to SCA (600 000 SEK/year), and about 50% of the sum distributed to NIPF shareholders as general forest subsidy (900 000 SEK/year), totalling 1.5 million SEK annually.
The smallest dividend was from TSA, which during the last 50 years has distributed about 118 million SEK. The dividend for the last decade was the lowest of the whole period, on average, 1.3 million SEK/year. This is equivalent, on average, to 1015 SEK per shareholder per year, and corresponds to 34 SEK/ ha/year. The leakage amounts to about 39% of this, i.e. around 0.5 million SEK per year.  1958-1967 1968-1977 1978-1987 1988-1997 1998-2007 1958, except Jokkmokk in the period 1958-1967, for which the source was Liljenäs (1977).

Discussion and conclusions
Despite the fact that the FCs were established in similar ecological and geographical environments, in order to fulfil the same aims, and having been subject to the same legal regulations since 1952, our results reveal that they have developed in different ways. There are differences in both perceptions of the benefits and costs from the FC by its membership, at an individual and at the community level, and in the actual size and use of the dividend. In general, most of the FC shareholders seem to be satisfied with their situation, but there are significant differences in how much advantage is perceived to result from FC membership between Älvdalen, Jokkmokk and TSA; shareholders in the latter seem to be the least satisfied. With regard to perceived benefits, shareholders from Älvdalen reported the highest level of FC support to local public goods while Jokkmokk shareholders emphasised individual gains. This seems to correlate with the priorities in each FC -which may be a result of management, reflecting members' wishes, or of members having accepted particular types of outcomes of FC membership.
In terms of shareholders' involvement in the management of their FCs, they elected the board responsible for day-to-day management with the professional forest manager and forest workers doing the actual work. However, our results reveal that very few shareholders actually attend the general assembly of the FCs -the figures ranging from about one-fifth to just under half of the respondents. Although lack of participation seems to be the general trend in the Swedish FCs (see for example, Nylund and Ingemarson 2007;Stenman 2009), it is interesting to note that TSA, with least satisfied shareholders as well as lowest dividend, also had the lowest participation rate. Although it is difficult to assess the causal link between participation (or lack thereof) and the level of benefits, we believe it to be dynamic and accentuating one another based on the shareholders' responses in this FC. For example, almost half of the respondents in TSA cited difficulties in getting shareholders to act for a common goal as a major disadvantage; while about a fifth said lack of control in their own share in the FC and too little profit accruing from the FC as the major disadvantages of their FC. The latter two points may reflect a more state-regulated situation in the county of Västerbotten where TSA is located (cf. Holmgren et al. 2010), compared to Norrbotten and Dalarna. Nevertheless, these negative perceptions among the shareholders are likely to have a significant impact in their level of participation within the FC. On the other hand, although the participation in Älvdalen and Jokkmokk was still only under 50%, it seems to be not related to similar sets of disadvantages as in TSA.
With regard to the dividend, Älvdalen FC yields the largest economic returns to the local shareholders, makes the highest contribution to common goods, and has the highest proportion of contented local shareholders. In contrast, the economic contribution is the lowest and the shareholders are the least contented with the TSA FC. Jokkmokk has an intermediate position in terms of both contentment and economic returns to NIPF shareholders. Thus, there is a positive correlation between the extent of economic output to shareholders and contentment. It also seems that the amount of the dividend that is distributed to common goods is correlated to contentment. Partly, the differences in the size of dividend are due to additional income besides that from forestry, particularly from hydroelectric power stations, but also from capital investments. In addition (cf. Holmgren et al. 2004), the FCs in Dalarna generally have a higher mean site productivity and have been more active in their forestry operations. The cited study also found evidence of restrictive forestry practices in FCs in Norrbotten and, particularly, Västerbotten. Furthermore, the shareholders in TSA have been found to undertake fewer forestry activities in their individually managed forests (Holmgren et al. 2007). One feature that differs between the FCs is the proportion owned by NIPFs. Hence, the forest companies may have influenced the intensity of forestry within them.
Despite the low dividend and low level of contentment, the number of shareholders has increased the most in TSA and the least in Älvdalen FC. This might seem contradictory, since the economic incentives to be a shareholder in Älvdalen FC are higher than in TSA. However, when the FC dividend, together with the income from private estates, becomes insignificant other ownership values may become more important. Such values could, for instance as data from TSA suggest (Table 2), include recreation, fishing and hunting, which are goods that shareholders gain access to regardless of the size of their share. Indeed, hunting, fishing and other recreational activities were both the stated and perceived primary benefits in all the FCs studied. In contrast, the perceived benefits from extractive forestry activities (for example, timber and fuelwood) were hardly mentioned. One of the major reasons for this is the fact that all forestry activities in the FCs are taken care of by professional foresters. However, this seems to create and widen the gap between the participation (and hence the input/cost) to the commons and the benefits (outputs) that the shareholders accrue from them; as Carlsson (1997) suggests, shareholders in the Swedish FCs seem to receive disproportionately higher benefits than their costs.
When we assess the performances of these three FCs in relation to some of the relevant attributes of successful commons (Ostrom 1990;McKean 1998) (see Box 1), we find striking correlation between the economic performance (efficiency), and the perceived fairness (Box 1, #8) and general well-being from the FCs. Only a quarter of respondent shareholders in the TSA totally agreed that their FC contributed to a more fair distribution of resources, while the figure is close to half for Jokkmokk and three-quarters for Älvdalen. When we look at the economic performance of these FCs, Älvdalen provided the highest dividend per hectare and TSA the lowest, with Jokkmokk in between (Figure 1). This was the general trend in all the statements related to the shareholders' views regarding their FCs (Table 4). Again, it is difficult to say which contributed to what -i.e. economic performance contributed to the shareholders' views of fairness and well-being (or lack thereof) from the FCs and hence their involvement (or lack of active participation). Or, it could be that the decreasing level of active participation and interest in the management of their FCs, and in formulating the FCs plan of action over the years has contributed to diminishing economic performance, especially in the FCs like TSA. In any case, one of the major attributes of the successful commons seems to be the (perceived) fairness both in the decision-making rights and in the accrual of benefits from the commons. In the case of TSA, we find this not to be the case.
In addition, the three FCs may have developed differently to some extent due to their early history and the settings in which the FCs were established. While Älvdalen FC was established in an old cultural setting, TSA was established under coercion and in an area where there has been little (if any) previous experience of traditional commons. Furthermore, the TSA FC was established by uniting the Tärna and Stensele FCs into a single common and by placing it in Stensele and giving the majority ownership to Tärna; it was, thus, created with an inbuilt tension something that has contributed to its less successful performance (cf. Ostrom 1990). The distribution principles applied by Älvdalen FC is such that the entire dividend stays within the municipality, either for common goods or to subsidize expenses incurred on the shareholders' estates. In the case of TSA, in contrast, there has been the highest proportion of leakage out of the municipality, the smallest dividends, the lowest local contentment, and, it seems, people have lost much of their economic interest in the common. Nevertheless, we find that most Swedish forest commons have the attributes that are considered necessary for successful common property regimes, particularly in terms of their physical and institutional characteristics, such as clearly defined boundaries; membership criteria; and creation, modification and enforcement of rules, among others. Given that these commons have survived for over a century and continue to do so, many of them as successful commercial enterprise, demonstrates that many of the attributes associated with these Swedish FCs are certainly those of 'long enduring commons' (Ostrom 1990).
To conclude, this study highlights the significant differences in terms of actual economic performance as well as in perceived benefits from the Swedish forest commons that were established on the same institutional and legal framework, and are similar in terms of size, their site productivity and geographic location. We find that the FC with better economic performance also reflected the attributes usually associated with the successful commons, such as the perceived fairness in the distribution of benefits, and providing greater well-being to the individual shareholders as well as the community at large. In contrast, the FC with the worst economic performance was perceived to be less fair in its benefits distribution, and as a source of well being by its own shareholders. The major issue, however, seems to be the lack of active participation in the matters related to the FCs, for example in (annual) general assembly, where most of the managementrelated issues are discussed and decisions made. On the one hand, shareholders, particularly in less well performing FC, seem to be complaining about the lack of control over their share in the FC (and hence lack of impact in its management), while at the same time they seem to be participating less in meetings where decisions about the FC are made. So, the challenge seems to be in reconciling these contradictory positions of the shareholders -in their perceived fairness (or lack thereof) in benefits sharing and in decision-making within the FC, and in their participation (or more precisely their lack of participation). This is particularly important in the FCs with weak economic performance, such as TSA, where these might accentuate other inherent problems within the FC (for example, perceived lack of coordination among the shareholders), and take the FC to a downward spiral.


The Politics of Zakat Management in Indonesia: the Tension Between Baz and Laz

The new Act of zakat management No. 23 Year 2011 has changed the position of private zakat management (LAZ; Lembaga Amil Zakat) which has no clear relationship with semi-governmental zakat management in the Act of Zakat Management No. 38 year 1999. This paper found that many debates arise especially on the position of private zakat management that has to work under the coordination of semi-governmental zakat management. Many data has shown that private zakat management has reached tremendous achievement compared to the semi-governmental zakat management. Based on this fact, this paper argues that zakat institutions in Indonesia needs to be managed properly without sacrificing the social capital i.e. the participation of private zakat management. This paper proposes that private zakat management needs to be given more spaces in optimizing the collecting and distributing zakat funds in Indonesia. The answer for this problem is building the regulator body for zakat management in Indonesia.

Introduction
Zakat is one of the five pillars of Islam, which has been made obligatory by Allah to each and every Muslim to carry out. The roles of zakat institution are not only to collect the zakat dues but also to redistribute the zakat funds to zakat recipients, so called as} na> f. Zakat is collected from variety of sources such as individuals as well as corporate companies, while later on is distributed to the eight groups of recipients (asnaf) as prescribed in Holy Quran.
The concept of zakat exemplifies Islam's strong concern with social and economic justice. It serves as an equitable redistribution of potential of zakat has not yet been realized. 8 Data showed that the actual zakat funds in Indonesia was still less than 5 percent of its potential funds. 9 The Indonesian government had promulgated a law of zakat management in 1999 under the Law Number 38. This law has been abrogated by the Law Number 23 Year 2011 regarding with Zakat Management in Indonesia. The replacement was made to revise certain aspects of the 1999 law, namely the position of BAZ vis-à-vis LAZ in zakat management. This article will examine the law, its background, and its impact on the existence of nongovernmental zakat collectors to portray the politics of non governmental Zakat Institution management in Indonesia.

Literature Review
Indonesia is the largest Muslim populated country in the world. 87% of 220 million people in Indonesia are Muslims. This comprised of about 191 million Muslims. From that figure, 40% (76.5 million) are subject to pay zakat, whereas the rest are entitled to receive zakat. Ideally, the rich Muslims can financially support the poor using the instrument of zakat. Thus, zakat, as an instrument of Islamic social welfare, should become a source to improve social-economic welfare for Muslim society in Indonesia. This means that zakat are very potential to alleviate poverty and promote social well-being if zakat can be organized effectively. 10 For that awareness, the scholarship on the issue of zakat management is increasingly abundant in recent years.
A.A. Miftah argued that zakat based fund has not yet contributed sufficiently to solving poverty problem in Indonesia. There are a number of possible factors contributing to this failure. One of them is the continuing practice of traditional management of zakat in which zakat funds are distributed by individual rich to the large number of poor Muslims in form of charity. Usually, the funds received by each poor person are enough only to support their basic needs for only a couple of days. Due to this problem, this paper proposed to redefine

JOURNAL OF INDONESIAN ISLAM
Volume 07, Number 02, December 2013 the concept of zakat in the level of perception, law system, management and application. 11 Other researcher, Zulkipli Lessy, discussed the development of zakat management to improve Islamic social welfare in Indonesia. Major issues in this paper are the elements of Islamic welfare efforts, the advancement of zakat institutions, and Muslims' misperceptions about zakat fitrah and zakat mal. Additionally, he discussed the role of the Indonesian government in regulating zakat and will highlight problems arising from the regulation. He highlighted the success story of Rumah Zakat Indonesia (RZI), a private institution of zakat collection founded to improve Islamic social welfare through its philanthropic activities. Because of its relative success compared to governmentinitiated zakat institution, the author suggested that the government and private zakat institutions should collaborate instead of competing with each other. 12 In the similar vein, Irfan Syauqi Beik et.al., argued that the Government of Indonesia should consider zakat fund as one of financial sources for the country in addition to tax fund. The results show that total of all zakat potential in Indonesia from various sources is approximately 217 trillion rupiah. This number is equal to 3.4% of Indonesia's 2010 GDP. However, the real collection of zakat fund is still far away from the potential number. This showed that the collection and distribution of zakat fund is still in need to be improved continuously. 13 Finally, Alfitri 14 concluded that there is an urgent need of regulations that better facilitate the nongovernmental zakat institutions would maximize the mobilization of zakat funds and their immediate redistributive economic impact in Indonesia. The nongovernmental zakat institutions have the same potential for generating zakat funds as the semi-governmental collector bodies do. While some private zakat management institutions perform very well, the rest still need professional management and oversight. And this can be remedied if the enabling regulation is enacted and referred by all zakat management in Indonesia, both private and government initiated ones.

The History of Zakat Management in Indonesia
Zakat is an obligation of Muslims to give a specific amount of their wealth -with certain conditions and requirements. Zakat is "that portion of a man's wealth is designated for the poor". It is also defined as, "a compulsory levy imposed on Muslim so as to take surplus money or wealth from the comparatively well-to-do members of the Muslim Society and give it to the destitute and needy". 15 As the definition implies, zakat is viewed by Muslims as a means of purifications and not just an obligation. Zakat plays an important role not only in the economy, but also in the moral and social well-being of a society. Morally, zakat promotes sharing of wealth and eliminates greed, whilst socially; it helps to reduce poverty within the community. 16 As a result, wealth is widely distributed to all sections of the society and this, undoubtedly, encourages healthier economic environment as well as social cohesion. There are eight categories of people that are eligible to receive zakat including the poor, the needy, zakat worker (amil), the wayfarer, the heavily indebted, freedom of slaves, new converts to Islam, and the cause of Allah." 17 Hassan 18 argued that based on the Islamic perspectives, poverty may be eliminated by using three distinct set of measures; i) positive measures, ii) preventive measures, and iii) corrective measures. One of the corrective measures of poverty eradication is through the payment of zakat. Wahid also underlined that zakat is one of the important pillars of Islamic faith that was not only instituted to increase the

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Volume 07, Number 02, December 2013 welfare of the poor but also to serve as a means of economic growth and stability. Therefore, zakat is a compulsory payment on the part of Muslims as share to the poor, having a wide variety of economic and social ramifications. 19 Based on traditional Islamic jurisprudence, the role of government is instrumental in the implementation of zakat in a Muslim country. The government is responsible for zakat collection and distribution. The government also has the authority to check individual Muslims to pay their zakat. This opinion is shared by all traditional schools of law in Islam. They justified this opinion on the practice by the Prophet Muhammad who during his lifetime collected and distributed zakat. In doing so, he also appointed zakat collectors and distributors to implement this sacred obligation. 20 In early Indonesian history, mosques and madrasahs were institutions managing zakat. When Javanese Muslims paid zakat, the most notably usage of the fund was for building mosques and madrasahs as their religious educational institutions. 21 During the Dutch era in Indonesia, religious leaders took part in collecting and distributing zakat. They used zakat funds for education and welfare of the people as well as for the armed struggle against the Dutch colonization. Knowing the grave consequence of zakat fund to its authority, the practice did not last long because the Dutch administration created effective control of zakat institutions. The political aim of the Dutch control over zakat was to take a financial source away from Indonesian Muslims and weaken the struggle against the colonization. 22 Modern zakat management in Indonesia began in the early 20th century. Muhammadiyah, which is the second largest socio-religious organization, created a national zakat institution. The function of this institution was to be an intermediary institution that collected zakat from payers to the eight entitlement groups specified in the Qur'an. 19 Abu N. M. Wahid, "The Economic Implications of Zakah," Contemporary Review, Issue 1440 (January 1986), p. 10-13. After Indonesia proclaimed its independence 1945, zakat management continued on a local community basis. There was no coordination nor mutual programs established to link one province to another for zakat collection and distribution.
Involvement of the state in managing zakat was still unclear in early Indonesian Government. During the Old Order period, Government Regulation and Regulation of the Minister of Religious Affairs did not assign zakat matters to the Ministry. 23 It was only in 1968 that the President Soeharto of the New Order officially instructed three high military officers to establish an organizational apparatus for the nationwide zakat collection. Presidential Decree No. 07/PRIN/10/1968 gave impetus to incorporating the zakat affairs into the responsibilities of the state. Later some governors established a semi-autonomous zakat agency, called BAZIS (Badan Amil Zakat Infaq dan Sadaqah, lit: the Office for Management of zakat and charity). 24 However, since its limited authority and resources, the establishment of BAZIS did not invalidate traditional method of zakat payment. Beside the BAZIS and the traditional system of zakat payment, which still continues at that era, a different initiative of zakat collection and distribution had also flourished through Islamic social and educational organizations. Many of these organizations were branches of national Islamic organizations such as Muhammadiyah or Nahdatul Ulama. They worked in a local area and were more oriented to their communities in using zakat funds. 25 In addition, private zakat institutions, such as Dompet Dhuafa and YDSF (Yayasan Dana Sosial al-Falah), also flourished along with the global phenomena of Islamic economy and revitalization of Islamic awareness starting the 1970s onward. Apparently, the blockage of political channel during Soeharto's presidency had forced Muslims to spend their energy in other similarly important programs, that is economic empowerment for fellow Muslims.
After the fall of Soeharto regime, zakat management, which was more privately managed, became more institutionalized in the form of greater government involvement. This involvement is in terms of 23 (LAZ or Lembaga Amil Zakat). LAZ has over 20 regional offices and only 18 major national-category offices. Of these 18 LAZ offices, five are considered to have the largest overall roles in society, along with BAZ as the sixth largest agency. This has shown that the enthusiasm to practice Islamic teaching related with zakat management has been increased.

The Politics of Non Governmental Zakat Institution Under The Law of Zakat No. 38 Year 1999
Law of Zakat Management No. 38/1999 was enacted by President B. J. Habibie who succeeded President Soeharto in 1998. Zakat Act No 38/1999 promised to enhance direction and accountability to zakat collector agencies in Indonesia. The Law covered both the semigovernmental collector agencies known as Badan Amil Zakat (abbreviated as BAZ) and the nongovernmental collector agencies known as Lembaga Amil Zakat (abbreviated as LAZ). Both BAZ and LAZ have the same functions: to collect, distribute, and utilize zakat proceeds efficiently. 26 Law of Zakat Management No. 38/1999 required balance auditing and annual reports to the government, and encourages public disclosure. Zakat Act No. 38/1999 generally regulates the institutions that manage zakat, but it does not make zakat payments obligatory. The state takes a neutral position with regard to the obligatory of zakat in Indonesia. This became the main weakness of this Act. According to Alfitri there could be three reasons for this weakness. First, cognizant of its "secular" stance, perhaps the state wanted to avoid getting involved in defining religious tenets, such as the details of zakat, and enforcing them. Second, the state may have expected details of zakat implementation to be worked out through lower-level regulatory frameworks and their decrees, such as the Minister of Religious Affairs' Decisions. And third, the state simply may not have been ready in term of resources and institutional preparation to introduce a full-scale program for zakat management. 27 Alfitri also identified two main debates on this Act. The first concerns tax deductions. This has been solved by Governmental Decision that zakat paid to BAZ or official LAZ may be subtracted from the gross income of a taxpaying legal body or from the net income of a personal taxpayer up to 2.5%. The second relates to self regulatory zakat management organization. Law No 38/1999 provided some legal basis for zakat management and its institution in Indonesia. It is insufficient, however, without an organizational, accountabilityenforcing structure as well. The adoption of such a structure is indispensable, especially because Law No. 38/1999 and Decision of Minister of Religious Affairs No. 581/1999 do not adequately provide for a body to supervise and regulate the nongovernmental LAZ. Both regulations focus more on the structure and the organization of the BAZ. As a consequence, conflicts of interest or overlapping programs can occur among LAZ.
However, despite all the controversy and debate that accompanies the Law No. 38 Year 1999, after the enactment of the Act there are two major things that greatly influence the history of Islam Indonesia in managing social fund, mainly in zakat and other charitable funds. It was the end of the government exclusive authority in managing zakat, which as mentioned previously indeed is an absolute right and obligation of Umara (government) in Islam. The law sanctioned the handing over of the authority to manage zakat fund to the part of community. The fact that the existence and success of private zakat management institutions preceded the enactment of Law No. 38/1999 also the reason for this arrangement. Both government-backed BAZ and privately initiated LAZ are the same and parallel position before the law. Both have the same authority and role in collecting and distributing of zakat funds for Muslim community in Indonesia.
However, the law does not clarify the roles and functions of BAZ and LAZ in terms of coordination and supervision. This had caused confusion because very often both the Government agency (BAZ) and Community initiative ( LAZ) are operational in the same area. They 'compete' to win muzakki (zakat payer). As the competition creates unhealthy situation, the government issued a new Law on Zakat

The Politics of Non-Governmental Zakat Institution Under The Law of Zakat No. 23 Year 2011
Zakat management has undergone significant change since the enactment of Act No. 23 of 2011. This new Act mandated a stronger integration of zakat management in the country. According to the Act, the zakat institution is divided in two: (i) government board of zakat and (ii) private zakat institutions. The former is known as BAZNAS or the National Board of Zakat, and the latter is known as LAZ. BAZNAS was given a mandate to lead the integration process and to coordinate all other zakat institutions comprising BAZNAS at the Provincial and City/Regency levels and LAZ.
However, the enactment of Law No 23/2011 on zakat management has caused controversy during the 6th Zakat Forum (FOZ) national congress held in Semarang, Central Java, from April 17 to 19, 2012. According to this forum many of the articles in the law were not clear and capable of multiple interpretations and thus could create problems during implementation. For instance, article 38 on zakat management by mosques, associations and Islamic boarding schools (pesantren) requires registration at the BAZNAS (semigovernmental zakat management). Yet, there is no detailed explanation on how this should be implemented. 28 The zakat Law No 23/2011 has stipulated that zakat management is the authority of the government and the public is only allowed to participate with a government authorization. It also stipulates that alms management be carried out by BAZNAS operating hierarchically from the central to regional levels. This stipulation seemed to limit the number of zakat-management organizations.
The debate on zakat Law No 23/2011 has driven FOZ to consider a judicial review some articles in the Act to Indonesian Constitutional Court. 29 The related articles reviewed in the Constitutional Court are listed in the table below: BAZNAS accountable to the president through the minister.
It is centralized management of zakat in the hands of the government.

Number 38
Anyone is forbidden to deliberately act as amil (collector and distributor) of zakat without the authorities' permission.
It is criminalization of Amil zakat who has no authorization even though they earn the trust of society.

Number 17
To assist BAZNAS in organizing charity, the community may build LAZ.
It puts LAZ privately formed by Muslim society under BAZNAS auspices.

Number 18
The establishment of LAZ must obtain BAZNAS permission.
LAZ must be legally registered as Islamic organizations It puts LAZ privately formed by Muslim society under BAZNAS auspices.
It is discriminative and will eliminate existing LAZs because most of LAZ formed as foundation.

Number 19
LAZ is obliged to report to BAZ.
It puts LAZ privately formed by Muslim society under BAZNAS auspices.
This reality shows that many aspects need to be put in order. At one side, the civil society participation through private zakat management need to be welcomed to strengthen zakat management that are still far from the full potential in mobilizing zakat funds in Indonesia. At other side, government intend to control the zakat management as the government is responsible in zakat management according to basic injunction of Islamic law.

Tension: Unintended Consequence
Historical fact shows that in general there has been a transformation or a shift in the management practices of the religious obligation of zakat. At the early Islam, zakat was organized by the

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Volume 07, Number 02, December 2013 state. 30 Later, as Islamic empire collapsed, zakat management then shifted to the duty of individuals. This also happened in Indonesia. Zakat has become a practice of charity of individuals in Islamic society. 31 In this situation, zakat management which had been practiced individually for a long time in Indonesia was a symbol of civil society where big social organizations such as Muhammadiyah and Nahdhatul Ulama play vital role in implementing zakat management in the society.
However, in the development of zakat management process in Indonesia, there was a necessary point where the involvement of the state is needed to ensure zakat implementation meets the requirements of Islamic shari'ah Islam, as well as the standard of good management, and accountability.. At the end, the full potential of Zakat as an Islamic instrument for achieving social welfare and well-being becomes a practical and significance means. In order to implement zakat properly, involvement of the State, the institution of Zakat and Zakat-officials is indispensable. On the other hand, the right of supervising the smooth functioning of the Institution of zakat, of collecting the zakat dues, and of distributing the zakat funds unquestionably vests in the Muslim State. 32 The state involvement in zakat management began during the New Order Regime under President Soeharto. Government did not intend to formalize Islam or to legalize zakat in Indonesia. However, government intended to modernize zakat and centralize the zakat management in 1968. This effort failed for various reasons; inadequate resources, lack of institutional framework, and unwillingness of Muslim society to associate with the Soeharto regime in their religious practices. Finally, it ended in 1972. On the contrary, the individual philanthropic practices including zakat fitrah and zakat mal become the norm in society. Many informal zakat institutions in mosques and education institutions were built. Many professional institutions for amil of zakat were established by individuals to serve zakat collection and distribution in society.
spaces for society to express their religious choices in paying zakat to more professional institutions or to any institutions they trusted.
At the end, this paper suggests that regulatory initiative which facilitates the modernization of zakat management in the sense of professional management is in need to maximise zakat collection and distribution. However, this modernization effort should not minimize the spaces for civil society to express their religious choices because of the threat of criminalization. Moreover, the participation of nongovernmental actors in zakat management preceded the government initiative in the area. Likewise, the private actors are proven to be more effective in raising more zakat funds. The centralization of Zakat management under the control of BAZ also needs to be revisited because during the last decade Muslim society has been trusting the service of non-governmental zakat management institutions without worrying about the accountability, credibility, and professionalism. It is true that zakat management is responsibility of government, but the solution to rectify this absence should not curtail the existing wellperforming non-governmental zakat institutions. This paper suggests that the government should put BAZ and LAZ at the same position. Ideally, the role to supervise BAZ and LAZ management should be performed by other authorized body that is established as regulator of zakat management in Indonesia. In addition to supervising function, this regulator of zakat management will regulate the distinction between BAZ and LAZ to minimize the competition between these two zakat institutions and strengthen the cooperation and the coordination between BAZ and LAZ.

Conclusion
The main objective of Zakat Management Act Number 23 Year 2011 is to realize social welfare through zakat funds mobilizing. The Zakat Management Act is also a response to the increasing number of zakat management institutions in Indonesia. This Zakat Management Act is projected to have clear impact towards well-performed, professional and accountable zakat management system in Indonesia. However, the modernization of zakat management under the Act Number Number 23 Year 2011 still leaves some debates. A lot number of traditional amil of zakat can be penalized if they are included as "unauthorized" zakat institutions. The centralization of zakat management as a part of government responsibility is also problematic because BAZ still cannot perform well compared to privately managed institutions for various reasons. As a result, it is not yet become the central of zakat management in Indonesia.
This paper argues that the zakat management as stipulated by the Act 23/2011 needs to be revisited to sustain and improve nongovernmental zakat management institutions which have been serving Muslims when the government was absent. The people choices in determining which zakat institutions they trust to manage their zakat funds as an expression of their religiosity need to be preserved. Private zakat sector proves to be more active and creative in mobilizing zakat funds. The answer for this problem is building the regulator body for zakat management in Indonesia. This regulator body should effectively regulate BAZ and LAZ. []


extfieldsofstudy:
Computer Science
Medicine

text:
Information dissipation as an early-warning signal for the Lehman Brothers collapse in financial time series

In financial markets, participants locally optimize their profit which can result in a globally unstable state leading to a catastrophic change. The largest crash in the past decades is the bankruptcy of Lehman Brothers which was followed by a trust-based crisis between banks due to high-risk trading in complex products. We introduce information dissipation length (IDL) as a leading indicator of global instability of dynamical systems based on the transmission of Shannon information, and apply it to the time series of USD and EUR interest rate swaps (IRS). We find in both markets that the IDL steadily increases toward the bankruptcy, then peaks at the time of bankruptcy, and decreases afterwards. Previously introduced indicators such as ‘critical slowing down' do not provide a clear leading indicator. Our results suggest that the IDL may be used as an early-warning signal for critical transitions even in the absence of a predictive model.

In financial markets, participants locally optimize their profit which can result in a globally unstable state leading to a catastrophic change. The largest crash in the past decades is the bankruptcy of Lehman Brothers which was followed by a trust-based crisis between banks due to high-risk trading in complex products. We introduce information dissipation length (IDL) as a leading indicator of global instability of dynamical systems based on the transmission of Shannon information, and apply it to the time series of USD and EUR interest rate swaps (IRS). We find in both markets that the IDL steadily increases toward the bankruptcy, then peaks at the time of bankruptcy, and decreases afterwards. Previously introduced indicators such as 'critical slowing down' do not provide a clear leading indicator. Our results suggest that the IDL may be used as an early-warning signal for critical transitions even in the absence of a predictive model.
A system consisting of coupled units can self-organize into a critical transition if a majority of the units suddenly and synchronously change state [1][2][3] . For example, in sociology, the actions of a few can induce a collective tipping point of behavior of the larger society [4][5][6][7][8][9][10][11] . Epileptic seizures are characterized by the onset of synchronous activity of a large neuronal network [12][13][14][15][16][17][18] . In financial markets the participants slowly build up an ever densifying web of mutual dependencies through investments and transactions to hedge risks, which can create unstable 'bubbles' [19][20][21][22][23] . Detecting the onset of critical transitions in these complex dynamical systems is difficult because we lack the mechanistic insight to create models with predictive power [24][25][26][27] .
A characteristic of self-organized critical transitions is that the network of interactions among the units leads to long-range correlations in the system, or in other words, every unit 'feels' the state of every other unit to some extent.
Here we measure this self-organized correlation in terms of the transmission of information among units. Shannon's information theory quantifies the number of bits that is needed to determine the state of a unit (i.e. Shannon entropy), as well as the fraction of these bits that is contributed by the state of any other unit (mutual information) 28 . We introduce the information dissipation length (IDL) as a measure of the characteristic distance of the decay of mutual information in the system. As such it can be used to detect the onset of long-range correlations in the system that precede critical transitions.
We apply the IDL indicator to unique time series of interbank risk trading in the USD and EUR currency and find evidence that it indeed detects the onset of instability of the markets several months before the Lehman Brothers bankruptcy. In contrast, we find that the critical slowing down indicator and other early warning signals used in the literature do not provide a clear warning. Our results suggest that the Lehman Brothers bankruptcy was a self-organized critical transition and that the IDL could have served as a leading indicator.
As a system's unit influences the state of another unit it transfers information 28 about its own state to the other unit [29][30][31][32][33][34] . For instance, each particle in an isolated gas 'knows' something about the momenta of neighboring particles due to the transfer of momentum during collisions. That is, the momentum of a particle is the result of its recent collisions with other particles. This information is in turn transferred to other particles in subsequent collisions, and so on. At each interaction the information is only partially transferred due to stochasticity and ambiguity 29,31,35,36 , so information about the state of one particle can only reach a certain distance (IDL) before it is lost.
The IDL measures to what extent the state of one unit influences the states of other units. As the state of one unit depends on another unit, a fraction of the bits of information that determine its state becomes a reflection of the other unit's state. This creates a certain amount of mutual information among them. A unit can then influence other units in turn, propagating these 'transmitted' bits further into the network. This generates a decaying amount of mutual information between distant units that eventually settles at a constant. The higher the IDL of a system, the larger the distance over which a unit can influence other units, and the better the units are capable of a collective transition to a different state. Because of this we can measure the IDL of systems of coupled units and detect their propensity to a catastrophic change, even in the absence of a predictive model. See Sections S1 and S2 in the SI for a more detailed explanation and how it differs from existing indicators.
We measure the IDL of risk-trading among banks by calculating the IDL of the returns of interest-rate swaps (IRS) across maturities. The rationale is that the dependencies between banks are expected to be reflected in the dependencies of swap rates across maturities, as we explain next. Each financial institute is typically exposed to a significant amount of risk of changes in short-term and long-term interest rates, and buys corresponding IRSs to cancel out or 'hedge' these risks. If an institute has difficulties in financing its short-term interest rate hedges and consequently has a higher chance of default, then each long-term IRS that it holds becomes less valuable (and vice versa). The corresponding buyers of these long-term (short-term) IRSs must buy additional long-term (short-term) IRSs on the market to compensate, increasing the demand. An increased dependence between institutes can therefore lead to an increased dependence of the prices of IRSs of different maturities. A significant increase of this approximated IDL may indicate the onset of a critical event. We consider it to be a warning if a threshold of two times the 3-year standard deviation above the mean is exceeded. This generates clusters of warnings about once in three years, which is a tradeoff between medium (twin) crises and the most severe (triple) crises; see Section S7 for the derivation.
The IDL of the IRS market at time t is estimated as follows. The swap prices form a one-dimensional system because, for instance, a 3-year IRS logically consists of a 2-year IRS and a prediction of the value of a 1-year IRS that starts two years in prospect. That is, that the price of the i th maturity depends on the price of a maturity i 2 1 and a (stochastic) prediction component. We therefore assume that the stochastic interaction between the IRS prices of maturities i and i 1 1 is equal for all i 37 , which leads to an exponential decay of information across the maturities (see Section S1 in the SI). The IDL at time t is thus calculated as the halftime of the mutual information between maturity 1 and i for increasing i. We estimate the mutual information between two maturities at time t using the 300 most recent return values, using the equiprobable binning procedure; see Methods for details.
The market of interest rate swaps (IRS) is the largest financial derivatives market today 38 with more than 504 thousand billion USD notional amounts outstanding, or almost 80% of the total market. The buyer of an IRS pays a fixed premium to the seller, while the seller pays the variable LIBOR or EURIBOR interest rate to the buyer. In effect, the seller insures the buyer against unexpected fluctuations in LIBOR or EURIBOR in return for the expected net value of the IRS. Swap prices can significantly influence the funding rates of financial institutions and therefore play a key role in the profitand-loss and risk of financial institutions such as banks, insurance companies and pension funds.
Our data is provided by the ING Bank and consists of the daily prices of IRSs in the USD and EUR currency for the maturities of 1 (USD only), 2, …, 10, 12, 15, 20, 25, and 30 years. The data spans more than twelve years: the EUR data from 12/01/1998 to 12/08/2011 and the USD data from 04/29/1999 to 06/06/2011. The prices of IRSs are based on LIBOR and EURIBOR, respectively, which are the average interbank interest rates at which banks lend money to each other. Our data correspond to IRSs with yearly fixed payments in exchange of quarterly variable payments because these swaps are the most liquidly traded across a wide range of maturities. The data is made available in the SI online.

Results
Evidence of IDL as an indicator of instability. In Figure 1 we show the original time series of IRS rates with the corresponding values of IDL. In both markets, the day of the Lehman Brothers bankruptcy is preceded by a significant increase of IDL and a decrease afterwards. This is consistent with our hypothesis that a self-organized transition requires that information about the state of a unit can travel a large distance through the system. The decrease of IDL following the bankruptcy is consistent with interpreting a critical phenomenon as the release of built-up stress 1 , similar to the way that an earth quake releases the built-up tension between tectonic plates. These two observations together suggest that the Lehman Brothers bankruptcy was a self-organized critical transition and that the IDL indicator is capable of detecting it. We verify experimentally that the IDL indicator indeed detects serial correlations between maturities and is not prone to false alarms by computing the IDL for randomly generated time series with a known period of serially correlated time series; see Section S6 in the SI for details.
Although in both markets the IDL indicator peaks near the Lehman Brothers bankruptcy, the two curves differ significantly in shape. Finding the underlying causes is highly speculative, nevertheless it is important to evaluate the plausibility that the IDL detected an increased instability of the financial market. Next we discuss the behavior of the IDL curves and their potential relations with significant economic phenomena.
In the USD market, a long-term build-up of stress starts in the beginning of 2004 and continues for more than four years, eventually peaking shortly before the bankruptcy. This is consistent with the common belief that markets create 'bubbles' 20 , which grow slowly over time and may 'burst', leading to sudden regime shifts triggered by a catalyzing event. In the U.S. financial market, the performance of subprime mortgage loans is considered a major cause of the current global financial crisis 39,40 . The subprime share of the mortgage market increased from about 8% in 2001 to 20% in 2006. Demyanyk and van Hemert 40 show in this context that the quality of loans deteriorated for six consecutive years before the crisis, and suggest that the market followed a classic lending 'boom-bust' scenario which was masked by a prevailing high house price appreciation. This latter phenomenon, termed the 'house price bubble' 41 , went hand-in-hand with the surge of subprime mortgage loans. The U.S. season-adjusted house-price index had been growing at an increasing rate from 1991 to 2006 42 , which stimulated the sale of low-rate mortgages based on the premise that the house prices would keep growing. Around the year-end of 2005, however, the growth rate stopped increasing and in March 2006 the growth rate had its largest-ever drop to below zero, after which the prices continued to decrease. As a result, home owners were less capable of financing the loan and the underlying security decreased in value, which further deteriorated the quality of the loans and destabilized the lending banks.
The EUR market, on the other hand, appears to have played a more submissive role. The IDL indicator rises distinctly for about half a year before the Lehman Brothers bankruptcy and diminishes in about the same amount of time. One plausible explanation is that the ever-growing instability in the USD market at some point 'infected' the EUR market, i.e., the EUR market may have become increasingly unstable as a consequence of the high instability of the USD market. This explanation is consistent with the observation that the financial crisis initiated in the U.S., whereas Europe responded to the U.S. www.nature.com/scientificreports SCIENTIFIC REPORTS | 3 : 1898 | DOI: 10.1038/srep01898 crisis rather than initiating its own. The 'infection' occurs due to the intimate relation between the EUR and USD markets.
Evidence of IDL as an early warning signal. We find that the IDL indicator could have served as an early-warning signal for the Lehman Brothers bankruptcy. We define the earliest time at which a warning could be given as the point where the IDL increases beyond a predefined warning threshold (see the inset of Figure 1). In the USD market data we find that the earliest clear warning precedes the bankruptcy by 118 trade days and lasts for 8 days, followed immediately by a warning that lasts for 7 days. In the EUR market the warning is much more pronounced, but also more concentrated near the bankruptcy. A clear warning starts 67 trade days in advance and lasts for 117 trade days.
Comparison to critical slowing down and other indicators. The most well-known leading indicator of critical transitions is the increase of the autocorrelation of fluctuations of the system state 2,43-46 . The intuition is that if an unstable system is perturbed it returns more slowly to its natural state compared to a stable system. The more stable the system, the stronger the tendency to return to its natural state, so the more quickly it responds to transient perturbations.
We compute the first-order autoregression coefficient of the fluctuations of each maturity IRS time series for all possible window sizes and show a representative set of results in Figure 2; see the Methods section for details. We find indeed signs of critical slowing down around the Lehman Brothers bankruptcy for certain window sizes. However, it is difficult to find parameter values that provide a sustained advance warning, that is, where the indicator crosses the warning threshold for more than a few days before the bankruptcy. Only in the EUR data for the 1-year maturity and a sliding window size of around 1000 trade days we find a significant early warning, which disappears for a sliding window larger than 1250 trade days (see Section S5.1 in the SI).
Another type of generic leading indicators used in the literature are the spatial correlation and spatial variance of the signals of the units of a system 3,47-52 . See Figure 3. In our data, the dimension of maturities can be taken as the 'spatial' dimension. The traditional correlation function used is the linear Pearson correlation, shown in the top panels of Figure 3. We also compute the correlations using the mutual information function, shown in the middle panels, since this The IDL at time t is calculated using the 300 most recent returns up to time t. Inset: the IDL indicator and a warning threshold during the 300 trade days preceding the LB bankruptcy. We set the warning threshold at two times standard deviations above the mean IDL of a sliding window of 750 trade days. Bottom: the mutual information between the rates of the 1-year maturity IRS and all other maturities (red circles) at two different trade days. The fitted exponential decay is used to estimate the IDL of the IRS rates across maturities for that specific trade day. function can capture non-linear relationships as well. In finance, correlations are often calculated using the relative differences (returns) of time series instead of the absolute values (19), so we repeat the calculations on the returns shown in the right half of Figure 3.
We find that in our time series these indicators do not show a distinctive change of behavior around the time of the bankruptcy in both markets. One possible explanation is that all IRS prices correlate strongly with external financial indices (such as the home-price index), which may dominate the observed correlations in the IRS prices across the maturities. In this scenario the IDL is still capable to be a leading indicator because it ignores the correlation that is shared among all IRS prices. That is, the information in the IRS prices of different maturities decays as a 1 b?(f t ) 12i where a is the information (or correlation) shared among all IRS prices, and the estimated rate of decay f t is independent of a.
More traditional indicators used for financial time series are the magnitude or spread of interest rates 53 . However, Figure 1 as well as the variances in the level data in Figure 3 show that neither measure provide a clear warning: a high (USD) and low-spread period (EUR) occurred more than a year before the bankruptcy and was returning to normal at the time of the bankruptcy.
Lastly, the same swap with a different variable payment frequency (e.g., monthly, quarterly, semi-annually) were quoted at the same price in the market before 2007. During the recent crisis, a significant price difference across frequencies emerged 54 . Although this has a major impact on the valuation and risk management of derivatives, this so-called 'basis' does not provide a clear early warning (see Section S5.2 in the SI).

Discussion
From an optimistic viewpoint, the IDL indicator may improve the stability of the financial derivatives market. Our observation that previously introduced leading indicators did not provide an early warning for the Lehman Brothers bankruptcy, and the crisis that The dashed red line is the warning threshold of two standard deviations above the mean of a sliding window of 750 trade days, as in Figure 1. The coefficient is computed of a sliding window of 500 (left) and 1000 (right) trade days which is detrended using a Gaussian smoothing kernel with a standard deviation of 5 trade days. We show the critical slowing down indicator for the first, second, fifth, and tenth maturity in the USD and EUR markets.
www.nature.com/scientificreports SCIENTIFIC REPORTS | 3 : 1898 | DOI: 10.1038/srep01898 followed, is consistent with the hypothesis that leading indicators lose their predictive power in financial markets 55 . A plausible explanation is that an increase of a known leading indicator could be directly followed by preemptive policy by central banks 56 , a change of behavior of the market participants, or both, until the indicator returns to its normal level. This would imply that the financial system is capable of avoiding the type of critical transitions for which it has leading indicators: it changes behavior as it approaches such a transition, while it remains vulnerable to other critical transitions for which it has no indicators. The fact that the IDL indicator provides an early warning signal suggests that it is capable of detecting a type of transition for which the financial system had no indicators at the time. Therefore, from this viewpoint the IDL indicator potentially makes the financial system more resilient because it improves its capability of avoiding catastrophic changes.
From a pessimistic viewpoint, on the other hand, the IDL indicator may actually decrease the stability of the financial system. Upon an increase of IDL, participants may respond in a manner that increases the IDL further, reinforcing the participants' response, and so on, propelling the financial system towards a crisis. This is a general dichotomy for all early warning indicators in finance 57 . In the absence of a mechanistic model of the financial derivatives market it is difficult to predict the effect of a warning indicator.
Our results are a marked step forward in the analysis of complex dynamical systems. The IDL is a generic indicator that may apply to any self-organizing system of coupled units. For many such systems we lack the mechanistic insight necessary to build models with sufficient predictive power. Remarkably, we find evidence that the percolation of information can provide a tell-tale of self-organized critical phenomena even in the absence of a descriptive model. Although we study the financial derivatives market here, it seems reasonable to expect that it is true for a wide range of systems such as the forming of opinions in social networks [5][6][7][8][9][10][11] , the extinction of species in ecosystems 3,44,45,49,[58][59][60][61] , phase transitions and spontaneous magnetization in physics 47,[62][63][64] , robustness in biological systems 65,66 , and self-organization of populations of cells 67 and even software components 68 .

Methods
Calculating the IDL in the IRS time series. Because the IRS price levels are not stationary within the sliding window sizes we use relative differences (returns) instead. Let i denote the return of an IRS with maturity i 5 1,…,15 at time t, where c (t) i denotes the corresponding price level. We fit the exponential decay azb : (f (t) ) 1{i to the measured Shannon information I(r (t) 1 jr (t) i ) as function of i, where a is the mutual information that all IRS rates have in common, b is the normalizing factor I(r (t) 1 jr (t) 1 ){a, and f (t) is the rate of decay of the mutual  information between the IRS rates across maturities. We define the IDL as the corresponding halftime log {1 f (t): log 1=2. The mutual information I(r (t) 1 jr (t) i ) is estimated by constructing an adaptive 69 contingency table of the two vectors  r (t{w)   1 , . . . ,r (t) 1 and r (t{w) i , . . . ,r (t) i , which are the w most recently observed returns in the market at time t. To construct this table we divide the range of values of each vector into h bins of variable size such that each bin contains about the same number of samples. Two observed pairs of returns are considered equal if they fall into the same bin. Our results are robust against choosing the parameters w and h; see Section S4 in the SI for more details. The results in Figure 1 were produced with a window of w~300 trade days and binning the return values into h 5 10 bins.
Calculating the first-order autoregression coefficient of fluctuations. Calculating this coefficient of a given time series requires two parameters: the standard deviation of the Gaussian smoothing kernel g, which de-trends the signal, and the number of most recent IRS prices w 2 which are used to compute the autoregression. The procedure is identical for each maturity. First we use the smoothing kernel to compute a running weighted average of the time series, where each IRS price level becomes the weighted average of its neighbors. Then we subtract it from the original time series to obtain the de-trended signal, i.e., the short-term fluctuations. Of these fluctuations we calculate the first-order autoregression coefficient at time t using the w 2 preceding prices. The autoregressive model used is the Yule-Walker model 70 . The results in Figure 2 were produced with a kernel of size g 5 5 and a sliding window of w 2~1 000 price levels. This procedure can be calculated for the price levels regardless of nonstationarity since it contains a de-trending step. See Sections S5.1 and S5.4 in the SI for more details as well as results for different values of g and w 2 .
Calculating the spatial correlation and variance. At each time point we calculate the spatial correlation coefficient at time t as C t~Fcorr (s t{w3 1 , . . . ,s t 1 ; s t{w3 i , . . . ,s t i ) i , using the preceding w 3 IRS rates of maturity 1 and maturities i, i 5 1,2,…,15. Here, F corr is either the standard Pearson correlation for the upper plots in Figure 3, or the mutual information function for the middle plots; : h i i denotes the arithmetic average of the correlation values for the different maturities, and s t i denotes the price of an IRS of maturity i at time t. The results in Figure 3 were produced using sliding windows of sizes w 3~1 00,300,500 f g . The spatial variance is computed at each time point