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

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 price...

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Bibliographic Details
Published in:Real estate economics 2023-05, Vol.51 (3), p.630-654
Main Authors: Giambona, Erasmo, Ribas, Rafael P.
Format: Article
Language:English
Subjects:
difference‐in‐slope estimator
disamenity
housing values
job creation
Prostitution
willingness to pay
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Summary: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.
ISSN:1080-8620
1540-6229
DOI:10.1111/1540-6229.12404