This article addresses one of the most controversial issues in resource management: how do population and market pressures affect resource use? After examining some shortcomings in several major approaches to the issue, the authors use structural equation analysis to decipher the relative and reciprocal influence of population pressures, markets, and institutional arrangements on forest use in the Kumaon Himalaya in India. By deploying an approach which investigates comparatively the effects of these factors, the article attempts to find a way out of the stultifying positions that participants in the debate on overpopulation and environmental change are forced to adopt. The results presented in the second half of the article are especially interesting, showing that local institutions created by the state play a critical role in mediating the influence of structural and socio‐economic variables. The findings thus possess significant implications for all who are interested in co‐management of renewable resources by the state and the community.