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

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