This was created in partnership with Environment for Development
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.