The external cost of prostitution: Evidence from shutting down red light districts in the Netherlands

Abstract

This article examines the value of externalities created by the presence of sex workers in the city. Although a legal paid‐sex industry might contribute to the economy, it may also generate negative externalities. To identify the net impact of overt prostitution, we estimate changes in housing prices following the sudden closure of the two red light districts (RLDs) in the Dutch City of Utrecht. Our results show that the capitalization effect of RLDs is spatially heterogeneous. While some areas are unaffected, others are up to 12% more expensive if far from operating brothels. Interestingly, though, evidence also shows that RLDs increase local employment in a variety of sectors. All the aversion to living near RLDs is instead explained by petty crimes.

Unveiling the Price of Obscenity: Evidence From Closing Prostitution Windows in Amsterdam

“…Additional tests, presented in the Appendix, confirm that the distribution of other businesses, such as bars and cannabis retailers, has not changed over time at the RLD borders.4 See alsoGiambona and Ribas (2022) for the effect of overt prostitution on local employment.Journal of Policy Analysis and ManagementPublished on behalf of the Association for Public Policy Analysis and Management…”