The External Cost of Prostitution: Evidence from Shutting Down Red Light Districts in the Netherlands

This paper examines whether residents value or despise the visible presence of sex workers in the city. Although a legal paid-sex industry might contribute to the economy, it may also generate negative externalities. To identify the net impact of overt prostitution, we estimate changes in housing prices following the sudden closure of the two Red Light Districts (RLDs) in the Dutch city of Utrecht. Our results show that the capitalization effect of RLDs is spatially heterogeneous. While some areas are unaffected, others are up to 12% more expensive if far from operating brothels. Interestingly, though, evidence also shows that RLDs increase local employment. All the aversion to living near RLDs is instead explained by petty crimes.