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

84 Pages Posted: 29 Jun 2017 Last revised: 13 May 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: January 19, 2018

Abstract

We measure the externalities of prostitution by quantifying the discount that households require to live next to a brothel. In our tests, we exploit a unique feature of Amsterdam's Red Light District (RLD), area inside a perimeter naturally delimited by canals where private homes are located next to prostitution windows. Using a novel two-dimensional difference-in-discontinuity (DiD) estimator, we find that households require a discount as high as 24% on homes inside the RLD. We also find that this discount disappears when prostitution windows are forcibly closed by local authorities. By incorporating the exact coordinates of brothel closings, our empirical design allows us to establish a direct link between these closings and changes in price discontinuities. To estimate the economic impact on households outside the RLD, we look at the closings of all brothels in Utrecht (the fourth largest city in the Netherlands) in 2013. Households are found to have paid up to 12% of the value of their home to be some distance from prostitution. In both cities, results can in part be explained by drug-related crimes and minor nuisances. Overall, our findings suggest that the nuisances prostitution creates do more harm than good to residents.

Keywords: Prostitution, Externality, 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 (January 19, 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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