How to internalise a difficult externality.

Houston - we have a problem. The police in Houston, Texas, lack the money and resources to promptly analyze the evidence collected in rape cases. Basic economic theory would say that those who cause a negative externality should contribute to paying for the external costs. So who should pay for rape investigations?

The Houston City Council have decided that the burden for funding these investigations should fall upon the city’s strip clubs. Ellen Cohen, the council member who championed the new law said that “There are negative secondary effects associated with adult-entertainment establishments”. In particular strip clubs should shoulder some of the costs of rape investigations because the establishments can cultivate unhealthy attitudes toward women that can lead to sexual assaults.

The tax is expected to generate up to $3 million in annual revenue. Not surprisingly, the clubs are opposed to the tax and deny that there is a link between strip clubs and violence against women. More on the arguments from both sides can be seen in this Wall Street Journal article.

And while there is nothing funny about sexual violence, I have to admit that I laughed when I saw that the $5 charge per visitor has been labelled a “pole tax”!