Market for Sexual Services ECON 1465: Prof. Fainmesser Deangeor Chin

3 Different Markets Prostitution – Voluntary career choice Human Trafficking for sexual services – Involuntary labor Escort & Masseuse Services – Breadth of sexual services is unknown

Vertical Differentiation Street walkers: make contact with potential customers by soliciting pedestrians or men driving by in cars Masseuse: work in a massage parlor  no soliciting Escort: assigned a customer by the escort services Bar Prostitutes: solicit their own customers in bars Bell Captain’s List: bell captain makes arrangements for hotel guests Call Girls: Referral agent makes arrangements usually by telephone or prostitutes with their own lists make their own arrangements Brothel Inmates: are chosen from the prostitutes present in the brothel when a customer arrives. *Reynold, Helen. The Economics of Prostitution. 1947

Key Definitions John: client or demander of sexual services Trick: sexual act or deed Pimp: one who finds customers for prostitutes and provides protection from extortion as well as physical violence

Describing the Prostitution Market Geographically Concentrated In a Chicago study, half of the prostitution arrests occurred in less that 1/3 of 1% of the city blocks* *Levitt & Vennkatesh. An Empirical Analysis of Street-Level Prostitution. 2007

Describing the Prostitution Market Pricing Price discrimination: prices (may) vary -across sexual acts -across customer characteristics -across client conditions -across supplier power

Describing the Prostitution Market Regulation There really is none - The criminal justice system has a MINOR impact on prostitution services

Supply Determined by maximization of utility -Generally women due to reservation wages – derived from utility function of clients and workers -Prices: 4x income otherwise - Human Capital (education, training & health) women have less and thus seek labor where intermittent labor market activity is not penalized, or in which skills do not deteriorate during periods of non-employments

Demand Males are the main demanders of commercial sex Dependent on income A function of age Commercial Sex may be a Giffen Good in that increased price is correlated with increased demand

Costs & Benefits of Prostitution Promotes violence: reduced societal utility – Police enforcement encourages prostitutes to relocate to dangerous areas – Must contract with pimps and can’t use the legal court system May beat & kill prostitutes as a method of signaling to others Fill the law enforcement gap… inefficiently – Moral discontent: reduces societal utility – Spread of STDs – Promotes the drug trade

Prostitution yes or no Costs: violence, moral discontent, STDs, drugs, law enforcement (~11mm) Benefits: $$$ (taxes, registration fees), feminist appreciation In its current state, prostitution is inefficient for society as well as clients but studies show that it is no less demanded

Increasing Societal Utility 3 Options 3 Results I.Increase regulation & implementation II.Decriminalize III.Legalize BenefitsCosts - Reduced violence: no geographical constraints -STDs remain -Pimp contracts will still be prevalent -Moral repugnance will still be rampant -Reduced violence -STD testing and laws -Police enforcement -moral repugnance

Future Research The effect of legalization of supply and demand The effect of legalization on the vertical differentiation within the prostitute market

References Ahlburg, Dennis A., Jensen, Eric R. Confronting AIDS: The economics of the commercial sex industry. Cameron, Samuel., Collins, Alan., Thew, Neill Prostitution Services: an explanatory empirical analysis. Applied Economics, 31: 12, Giusta, Marina et al. Sex Markets A Denied Industry Levitt, Steven D., Venkatesh, Sudhir A. An Empirical Analysis of Street-Level Prostitution Reynolds, Helen. The Economics of Prostitution Warnick, Ashlie C. Sex Without Romance: The Political Economy of Prostitution. 2007

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