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Wednesday, March 28, 2012

Negative Externality of Legal Prostitution

Prostitution (i.e. the act of exchanging money for sexual service) in the United States is illegal in all but one state, Nevada. In Nevada, prostitution is illegal in four counties (Clark, Washoe, Douglas & Lincoln) and Carson City (the state capital). All other counties and cities, in Nevada, can have legal brothels. Rhode Island (between 1980 through most of 2009) did not criminalize most forms of prostitution (excluding such acts as street walking, etc.).

Sexually transmitted diseases (STDs) can be a source of market failure in legal brothels in Nevada. A negative externality (unintentional, non-market interdependence) exists in this market. If a legal prostitute tests positive for HIV/AIDS, she no longer works. This is Nevada state government force. The unintentional, non-market interdependence (third-party) detriment of a man going to such a brothel and acquiring HIV then sharing it with his girlfriend or wife exists (as a possibility). This is a negative externality (for the girlfriend or wife). The risk exists because a legal prostitute could acquire HIV and transmit it to a male client between mandatory STD tests.

I believe government regulation can be justified (for legal prostitution in Nevada), because it forces the women to take responsibility (requiring safety precautions to be taken for the sake of their livelihoods); in other words, they have to “put skin in the game” to continue working legally in Nevada (as prostitutes).

I suggest there is no externality. There are intentional interdependencies, market or otherwise.

There are of course risks associated with these intentional interdependencies, and there are risks of harm to others. I suggest that the risks you identify involve what should be considered crime, and as such, as I've explained I do not think crime is an efficiency question per se. There is not an efficient amount of harm (greater than zero) of the sort you identify.

And, of course, if there were a negative externality involved the efficiency policy answer would not be regulation buy a corrective tax.
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