Whether the seller is male or female, a call girl, an escort, a streetwalker or a gigolo, he or she is contributing to a multibillion market: prostitution. There are more than 40 million prostitutes working at this very moment, more than the entire population of Canada. The economics of prostitution is worth talking because the market is so huge!
The Opportunity Costs of Prostitution
In life a woman can’t be “a wife and a prostitute” at the same time. Men are biologically driven to want faithful wives. A man with a faithful wife can be sure he is the father of her children and that his genetic legacy is secure. The opportunity cost of a lady choosing to prostitute is to give up HER genetic legacy, as well as marriage, the possibility of raising a family, having another career, and social respect. These are VERY high costs; so the compensation (money that men pay) should reflect the cost.
The price range for a prostitute is vast. A prostitute in South Africa can make as low as $1/working day, but on the other extreme, a ‘high class escort’ in the US can make thousands of dollars a night (ex-New York governor Eliot Spitzer paid more than $10,000 US for a call girl). The price depends on the age, experience, location, type of intercourse, whether she has a pimp or not, whether the client knows the prices, etc.
The Economics of Prostitution
An interesting study by Steven D. Levitt (an economist) and Sudhir Alladi Venkatesh (a sociologist) from the University of Chicago looked at the economics of prostitution on the streets of Chicago. The study was based not only on police-reported data and US statistical databases, but also on street level information collected from prostitutes and pimps that they contacted. Levitt and Venkatesh discovered:
- Prostitutes get arrested only once per 450 tricks they perform
- There are about 1,200 tricks performed per John arrested, and the prostitutes have less risk of being arrested if they have a pimp
- Around 3% of the tricks performed by the prostitutes are ‘freebies given to police officers’ to avoid arrest
- Prostitutes working with pimps have higher incomes than the ones working alone
- White customers pay around $9 more than Black customers
Also, with the chart below (average of prices of White, Black, and Hispanic customers), we can see that, just like every good or service, a prostitute’s prices increase with a risk or marginal cost (additional effort and time in this case) increase.
The Internet is Changing the Nature of the Sex Trade
In a study by Cunningham and Kendall, the Internet changed the economics of prostitution by increasing the prostitution market over the last 15 years, but also displacing the market of streetwalking in some age groups. Since prostitutes from 25 to 40 years old can easily switch to e-prostitution whereas younger and older prostitutes don’t necessarily have the means to do so. There are actually sites where you can rate the quality of the service received from a prostitute and where prostitutes can exchange comments about the clients they spent the night with. This creates an incentive for them to provide ‘quality service’ and the comment system allows them to know in advance what to expect with each client.
200 million dollars is spent on prostitution-related crimes in the USA. One could conceivably suggest just legalizing it. If done correctly it doesn’t harm anyone! But still, the problem with prostitution in most developed countries is not the about the act of paying for sex, it is about the associations with drug abuse, violence and human trafficking. E-prostitution reduces streetwalking, possibly also reduces violence against prostitutes, but the drug abuse and human trafficking elements are still present in this market.
With tens of millions of people in the prostitution industry around the world, should governments regulate or legalize the industry to protect human rights, or should it be a billion dollar secret? Can the economics of prostitution play a role in policy? Mindthis plans to dig deeper with an analysis on human trafficking coming soon.
Note that this article focused only on women being the ‘supplier’ of the good (sexual relations) and men being the ‘demanders’, men-to-men prostitution being much less prevalent and women-to-women almost unknown.