Unveiling the Price of Obscenity: Evidence from Closing Prostitution Windows in the Netherlands
84 Pages Posted: 29 Jun 2017 Last revised: 13 May 2018
Date Written: January 19, 2018
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: Suggested Citation