Unveiling the Price of Obscenity: Evidence from Closing Prostitution Windows in the Netherlands

94 Pages Posted: 29 Jun 2017 Last revised: 23 Nov 2018

See all articles by Erasmo Giambona

Erasmo Giambona

Syracuse University - Whitman School of Management - Finance Department; James D. Kuhn Center for Real Estate

Rafael P. Ribas

University of Amsterdam - Finance Group

Date Written: November 21, 2018

Abstract

This paper quantifies the aversion of residents to on-site prostitution. To establish causality, we first exploit the fact that Amsterdam's Red Light Districts (RLDs) are delimited by canals, together with a policy that closed several prostitution windows since 2007. Using a two-dimensional difference-in-discontinuity estimator, we find that households require at least 6,000 euros/year to be right next to a brothel. To estimate the economic impact outside the RLD, we also look at the closings of all brothels in Utrecht in 2013. Using a spatial difference-in-slope estimator, the effect on house prices is found to be heterogeneous and some households pay up to 1,600 euros/year to be distant from prostitution. Both cities also experienced crime reduction in the RLDs, but the explained changes in house prices are mostly driven by drug-related crimes and minor nuisances. In Amsterdam, more than 70% of the discount applied to houses beside brothels remains unexplained.

Keywords: Prostitution, Disamenity, House Prices, Willingness to Pay, Spatial Regression Discontinuity, Difference-in-Slope

JEL Classification: C31, H41, K42, L83, R21

Suggested Citation

Giambona, Erasmo and Ribas, Rafael Perez, Unveiling the Price of Obscenity: Evidence from Closing Prostitution Windows in the Netherlands (November 21, 2018). Available at SSRN: https://ssrn.com/abstract=2994037 or http://dx.doi.org/10.2139/ssrn.2994037

Erasmo Giambona

Syracuse University - Whitman School of Management - Finance Department; James D. Kuhn Center for Real Estate ( email )

721 University Avenue
RM 120-D
Syracuse, NY 13244-2450
United States
315 443-4885 (Phone)

Rafael Perez Ribas (Contact Author)

University of Amsterdam - Finance Group ( email )

Plantage Muidergracht 12
Room M 3.06
Amsterdam, 1018 TV
Netherlands

HOME PAGE: http://https://sites.google.com/site/r4ribas/

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