Tuesday, 16 January 2018

SOOBs and disamenities

Housing within Amsterdam's red light district trades at a discount. Here's Erasmo Giambona and Rafael Ribas.
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, 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. 
I wonder whether there's New Zealand data available on the location of brothels. Prostitution law reform and the emergence of suburban owner-occupied brothels, and varied council approaches to zoning and regulation, would provide plenty of room for diff-in-diff study. Red light districts could be rather different than smaller owner-occupied facilities. 

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