The project aims at facilitating the development of the Joint Forest Management (JFM) approaches through enhancing dialogue and negotiations between stakeholders namely, villagers, the Forest Department and private entrepreneurs. The project is being carried out in five other countries, namely Brazil, Congo, Ghana, Tanzania and Viet Nam. The IPS provides economic expertise to the study in Sri Lanka. Three peripheral villages of the Knuckles Forest Range have been selected as the pilot site. The study reveals that households living in the periphery are less dependent on forest resources as a means of income. However, the declaration of the Knuckles Conservation Zone in 2000 by the Forest Department has imposed adverse impacts on the household economy due to the banning of chena (shifting) cultivation and restricted access to the forest. Based on the primary survey carried out in the pilot site, the study reveals that the amount that should be compensated is approximately US$ 150 per year per household, on average.