The expansion of oil palm plantations in Indonesia has doubled in the last decade, yet productivity remains low. This issue among smallholders requires a detailed examination of the distinct physical, market, and social conditions faced by independent and dependent smallholders (plasma farmers). This research investigates the institutions and governance structures necessary for regulating palm oil production among smallholders, utilizing the Institutions of Sustainability (IoS) framework and focusing on transactions as the core unit of analysis. The growth of independent smallholders’ plantations often comes at the cost of forest and arable land. The high demand for fresh fruit bunches, driven by numerous palm oil mills, has created a robust institutional environment in the palm oil market, encouraging farmers to convert land into oil palm plantations. To align palm oil demand with limited natural resources, strict monitoring and regulation of new processing facilities are essential. Plasma farmers engage in contracts with palm oil firms and operate through cooperatives. However, these contracts often fail to meet smallholders' basic needs, leading to increased transaction costs and uncertainty. Many cooperatives do not effectively enhance productivity or welfare due to misalignment between individual and collective interests. Institutional gaps arise from the absence of collective choice rules within cooperatives, impacting t
