Human Trafficking and Regulating Prostitution

Certain markets are illicit because part of the supply is coerced, but little known about optimal regulation such markets. We model a prostitution market with voluntary and coerced prostitutes ask what can restore benchmark outcome that would arise under laissez-faire absent coercion. Whereas current policies—decriminalization, criminalization buy or sell sides, licensing—are ineffective against trafficking harm suppliers, we show an alternative policy outcome. Our results relevant to ongoing debate decriminalizing provide guidance for empirical work on regulation. (JEL D45, J47, J82, K38, K42)