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