Prostitution and House Prices: Evidence from Closing Brothels in the Netherlands∗
Prostitution and House Prices: Evidence from Closing Brothels in the Netherlands∗ Erasmo Giambonay Rafael P. Ribasz This Draft: December 19, 2017 Abstract We measure the externalities of prostitution by quantifying the discount that households re- quire 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 Nether- lands) 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, the contraction of the paid-sex industry is also associated with a drastic reduction in crime rates. Overall, our findings suggest that the nuisances prostitution creates do more harm than good to residents. JEL Classification: C31, D12, D62, H43, K4, L83, R21, R53. Keywords: Prostitution, Externality, House Prices, Willingness to Pay, Spatial Regression Discontinuity, Difference-in-Slope. ∗The authors thank Christopher Timmins, Olivier Marie, Murillo Campello, J.J.
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