• Study presents the first economic valuation of a Caribbean island coastal lagoon.
• A choice experiment embedded in a larger household survey is used for the valuation.
• The Simpson Bay Lagoon provides many valuable ecosystem services to local people.
• Findings illustrate that the lagoon is currently worth $12.1 million per year.
• Mangrove restoration and improved sewage treatment raise value up to $26.3 million.
Like many Caribbean coastal ecosystems, the Simpson Bay Lagoon in Saint Martin suffers from heavy development, wastewater pollution, and overexploitation. These pressures have severely degraded its ecological integrity, causing significant environmental impact as well as negative socio-economic consequences. Local livelihoods depend on important ecosystem services provided by the Simpson Bay Lagoon, such as storm protection and water purification. A major cause for the continued degradation of the Simpson Bay Lagoon is that decision-makers undervalue these ecosystem services. This study conducts an economic valuation of the Simpson Bay Lagoon to solve this undervaluation, providing the first economic valuation of a Caribbean island coastal lagoon. To estimate the economic value of the Simpson Bay Lagoon, this paper employs a choice experiment, which is embedded in a larger household survey among residents of Saint Martin. The findings of the choice experiment reveal that the Simpson Bay Lagoon in its current environmental state is worth US$12.1 million per year to the residents of Saint Martin. Besides an economic valuation, this paper also scrutinizes the welfare benefits of improved environmental management. Two environmental management scenarios are evaluated: the installation of a sewage treatment plant and mangrove restoration. The installation of a sewage treatment plant would enhance the annual economic value to US$16.5 million, mangrove restoration to US$23.0 million, and the implementation of both measures to US$26.3 million. Hence, ameliorating the ecological integrity of the Simpson Bay Lagoon through improved environmental management proves to be a promising venture for the environment, society, and economy of Saint Martin.