Lee, Samuel and Persson, Petra, Human Trafficking and Regulating Prostitution (July 11, 2012). NYU Stern School of Business EC-12-07; NYU Law and Economics Research Paper No. 12-08. Available at SSRN: http://ssrn.com/abstract=2057299 or http://dx.doi.org/10.2139/ssrn.2057299
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The effect of prostitution laws on human trafficking and voluntary prostitution is subject to debate. We argue theoretically that neither legalization nor criminalization can simultaneously protect voluntary prostitutes and unambiguously reduce trafficking. We propose a novel, “hybrid” policy that achieves both objectives and restores the free market outcome that arises in the absence of trafficking. If a regulator aims to eradicate all prostitution instead, the optimal policy criminalizes all johns. Criminalizing prostitutes is ineffective and unjust because it fails to eradicate trafficking and penalizes victims. We consider cross-border trafficking, sex tourism, social norms, and political support for prostitution laws. The model predicts that the female-male income ratio is a key determinant of what share of prostitutes is trafficked, the consequences of prostitution laws, and the political will to enact or enforce them.