Facility and Community Level Environmental Certification: Price Premium Substitutes or Complements?
*Names in bold indicate Presenter
Our research examines how firms’ price premiums are affected by performance in facility and community level environmental certification programs. Relying on a propensity score matching approach aimed at correcting for self-selection bias, we analyze two major voluntary environmental certification programs in Costa Rica: the Blue Flag Program, which provides certification for coastal communities, and the Certification for Sustainable Tourism (CST) program, which certifies beyond-compliance environmental performance by individual hotels. To do this, we use panel data for the entire population of hotels and beach communities in Costa Rica between 2001-2008 (n= 3500 hotel-year observations).
The majority of studies of voluntary certification programs tend to analyze individual programs and their associated effect on participant firm facilities, leaving aside the environmental performance of the community where participant firm operate. This research seeks to quantify the combined price premium effects of two voluntary environmental certification programs: one focused on firm facilities and another focused on communities.
Findings of our study suggest: (1) a lack of a significant price premium for firms showing low certified facility-level environmental performance even when they are located in communities receiving collective environmental certification (in the form of the Blue Flag). (2) Significant price premiums for firms showing superior certified facility-level environmental performance. And (3), most interestingly, we found that community level environmental certification only increases the magnitude of the price premiums for firms showing the highest individual facility-level environmental performance. That is, to gain the greatest price premiums from a certified “green” reputation, it is necessary for firm to be located in host community receiving collective environmental certification and to also show the highest levels of certified facility-level environmental performance.