Interesting article in the Economics focus section of the Economist this week on Steven Levitt (think Freakonomics). What is the nature of selling sex? This article give you a little insight into the economics behind prostitution in the city of Chicago (I am sure Mayor Daley loves to hear all about this).
Some things that caught my thoughts:
Almost half of the city’s arrests for prostitution take place in just 0.3% of its street corners. The industry is concentrated in so few locations because prostitutes and their clients need to be able to find each other. Earnings are high compared with other jobs. Sex workers receive $25-30 per hour, roughly four times what they could expect outside prostitution. Yet this wage premium seems paltry considering the stigma and inherent risks. Sex without a condom is the norm, so the possibility of contracting a sexually transmitted infection (STI) is high. Mr Levitt reckons that sex workers can expect to be violently assaulted once a month. The risk of legal action is low. Prostitutes are more likely to have sex with a police officer than to be arrested by one.
Pricing strategies are much like any other business. Fees vary with the service provided and prostitutes maximise returns by segmenting the market. Clients are charged according to their perceived ability to pay, with white customers paying more than black ones. When negotiating prices, prostitutes will usually make an offer to black clients, but will solicit a bid from a white client. There are some anomalies. Although prices increase with the riskiness of an act, the premium charged for forgoing a condom is much smaller than found in other studies. And attractive prostitutes were unable to command higher fees.
My first thought would be: more money than $25 – $30, I would pay more due to the color of my skin. What does this say about perceived risk? No condom, risk of jail, violent assault, and roughly four times the low wage in the city. It seems like condom use and attractiveness would work up the price in a significant manner. It would be interesting to see a subsection of the data related to price negotiation strategies and prostitution.
One controversial finding is that prostitutes do better with pimps—they work fewer hours and are less likely to be arrested by the police or preyed on by gang members. The paper’s discussant at the conference, Evelyn Korn of Germany’s University of Marburg, said that her favourite result from the study was that pimps pay “efficiency wages”. In other words, pimps pay above the minimum rate required by sex workers in order to attract, retain and motivate the best staff. Mr Levitt said that a few prostitutes asked the researchers to introduce them to pimps.
Pimps as efficiency brokers? Hmm… It would be interesting to see how higher-end prostitution has used the internet to capitalize on this efficiency brokering and replaced the pimp, and, then, how this progresses downward to street-level prostitution over time. (“The internet and the down fall of the pimp.”)
“An Empirical Analysis of Street-Level Prostitution” – Steven Levitt and Sudhir Venkatesh
“Sex Work and Infection: What’s Law Enforcement Got to Do with it?” – Paul Gertler and Manisha Shah