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Tourism associated with beaches, protected areas, and other natural resources often has serious environmental impacts. The problem is especially acute in developing countries, where nature-based tourism is increasingly important and environmental regulation is typically weak. Eco-certification programs—voluntary initiatives certifying that tourism operators meet defined environmental standards—promise to help address this problem by creating a private-sector system of inducements, monitoring, and enforcement. But to do that, they must provide incentives for tourism operators to participate, such as price premiums and more customers. Rigorous evidence on such benefits is virtually nonexistent. To help fill this gap, we use detailed panel data to analyze the effects of the Blue Flag Program, a leading international eco-certification program, in Costa Rica, where nature-based tourism has caused significant environmental damage. We use new hotel investment to proxy for private benefits, and fixed effects and propensity score matching to control for self-selection bias. We find that past Blue Flag certification has a statistically and economically significant effect on new hotel investment, particularly in luxury hotels. Our results suggest that certification has spurred the construction of 12 to 19 additional hotels per year in our regression samples. These findings provide some of the first evidence that eco-certification can generate private benefits for tourism operators in developing countries and therefore has the potential to improve their environmental performance.

In developing countries, tourism often revolves around beaches, forests, and other natural resources. But that tourism—and the infrastructure and economic activity it spurs—can do serious environmental damage. According to advocates, voluntary, private-sector eco-certification programs that verify that tourism businesses adhere to defined environmental standards can help. But to do that, they must provide incentives for businesses to participate, such as price premiums and more customers. Very little is known about whether they actually do that.

In a new RFF discussion paper, “Does Eco-Certification Pay? Costa Rica’s Blue Flag Program,” RFF Senior Fellow Allen Blackman and his colleagues provide some of the first hard evidence that eco-certification in the tourism industry of developing countries can benefit local businesses.

They examine the Blue Flag Program, a leading international tourism eco-certification program in Costa Rica. The authors determine that investment in new hotels is positively and significantly correlated with Blue Flag certification, and note:

“[Our findings] suggest that these programs are apt to attract operators and at least have the potential to improve environmental quality. Moreover, they may boost local economies. These capabilities are particularly important in the developing country context, where conventional command-and-control environmental management tools are often if not typically ineffective and where concerns about economic growth often trump worries about environmental protection.”?