...homes next to prostitution windows are sold at a discount as high as 24%, compared to similar properties outside the RLD...And they found that half or more of the price discount related to crime. The argument is that red light districts attract crime, and that crime reduces local property values. An interesting related question is, if crime is displaced and concentrated in the red light district, what happens to crime overall in the city?
In a 2017 article published the American Economic Journal: Economic Policy, Paul Bisschop (SEO Economisch Onderzoek), Stephen Kastoryano (University of Mannheim), and Bas van der Klaauw (VU University Amsterdam) look at what happened to city-level crime in the 25 largest cities in the Netherlands when tippelzones were introduced. To be clear:
[a] tippelzone is a designated legal street prostitution zone where soliciting and purchasing sex is tolerated between strict opening and closing hours at night.Using data from 1994 to 2011, and accounting for the fact that nine Dutch cities opened tippelzones between 1983 and 2004 (and three closed their tippelzones in that time), they find that:
...opening a tippelzone reduces sexual abuse and rape. These results are mainly driven by a 30–40 percent reduction in the first two years after opening the tippelzone... For tippelzones with a licensing system, we additionally find long-term decreases in sexual assaults and a 25 percent decrease in drug-related crime, which persists in the medium to long run.This accords with a theory that prostitution and rape (or sexual abuse) are substitutes for some men. This theory is not new - it actually dates to Thomas Aquinas (according to this paper - sorry, I don't see an ungated version anywhere).
If the effect (a 30-40 percent reduction in rape and sexual abuse) seems large, consider the results of a second article, by Scott Cunningham (Baylor University) and Manisha Shah (UCLA), published in the journal Review of Economic Studies earlier this year (ungated version here). Cunningham and Shah look at the surprising case of Rhode Island, where indoor prostitution (e.g. massage parlours) was accidentally legalised in 1983 (as part of a reform of prostitution laws), but this fact wasn't picked up until a judge's ruling in 2003. After that, it took six years for the Rhode Island legislature to re-criminalise indoor prostitution. In the meantime, indoor prostitution was legal in the state.
Using data from 1999 to 2009, they showed that unsurprisingly:
[m]assage provision by RI sex workers increases by over 200% after decriminalization. Transaction prices decrease 33% between 2004 and 2009, which is what economic theory would predict given the increase in supply. Both results are statistically significant at conventional levels.The more important results though relate to crime and public health effects. For crime, they found that:
[d]ecriminalization reduces rape offences 31–34% from 2004–09. From 1999–2003 reported rape offences in the U.S. are 34 per 100,000 and 40 per 100,000 in RI. From 2004–09, rape rates decrease to 27.7 per 100,000 in RI while the U.S. remains the same at 34.1 per 100,000.Notice the similarity in the size of effects with the Bisschop et al. study from the Netherlands. Legalisation of prostitution reduces rape by 30-40 percent in both studies. Cunningham and Shah have some good explanations for possible mechanisms explaining the results. In addition to the substitution theory noted above, they posit that:
...decriminalization of indoor prostitution could allow police resources to be reallocated away from indoor arrests towards other crimes. The freeing up of police personnel and equipment to other areas could ultimately cause other crime rates like rape to decrease...In terms of public health, they find that:
...decriminalization decreases gonorrhoea incidence 47% from 2004–09. From 1999–2003 gonorrhoea incidence in the U.S. was 113.4 per 100,000 females compared to 81.4 per 100,000 females in Rhode Island. From 2004–09, the rate in the U.S. stays similar at 108.4 per 100,000 females but Rhode Island declines to 43.1 per 100,000 females.The potential mechanism is interesting here too. Legalisation of indoor prostitution induces women to enter the industry, and the types of women entering the industry are lower risk (have lower gonorrhoea incidence). Also, indoor prostitution generally involves less risky sex acts (more manual stimulation, less anal sex).
Cunningham and Shah's study also covers the period after indoor prostitution was re-criminalised in Rhode Island. You would expect to see effects that are the opposite of those for when it was legalised. Unfortunately, that isn't the case, and the authors argue that:
...this is likely due to anticipatory effects and the short time period of data. Re-criminalization was anticipated, unlike the initial judicial decision that caused decriminalization; the push to re-criminalize started as early as 2006. Some claim that massage parlour owners and workers started leaving even before re-criminalization occurred, as they knew it was inevitable.They also only had two years of data after the change, which would make quantitatively identifying any effects difficult.
Overall, the results of these two papers suggest that legalising prostitution, even if in a particular part of a city, may be a cost-effective way to reduce overall crime and improve public health. However, if it is to be legalised in only part of a city, the distributional effects need to also be considered, since crime would now be concentrated in a particular part of the city, which as we know from my earlier post, has a cost in terms of lower house values.
[HT: Marginal Revolution, in October last year]