Flutterby™! : The economics of prostitution 2008-01-23 18:34:28.012463+00

The economics of prostitution

2008-01-23 18:34:28.012463+00 by Dan Lyke 3 comments

An Empirical Analysis of Street-Level Prostitution, by Steven D. Levitt and Sudhir Alladi Venkatesh (ie: the Freakonomics guy and the street gangs economist). The footnote to the title page warns "Extremely preliminary and incomplete. Please don't cite without prior permission of the authors", but the abstract is gripping:

Combining transaction-level data on street prostitutes with demographic observation and official police force data, we analyze the economics of prostition in Chicago. Prostition, because it is a market, is much more geographically concentrated than other criminal activity. Street prostitutes earn roughly $25-$30 per hour, roughly four times their hourly wage in other activities, but this higher wage represents relatively meager compensation for the significant risk they bear. Prostitution activities are organized very differently across neighborhoods. Where pimps are active, prostitutes appear to do better, with pimps both providing protection and paying efficiency wages. Condoms are used only one-fourth of the time and the price premium for unprotected sex is small. The supply of prostitutes is relatively elastic, as evidenced by the supply response to a 4^th of July demand shock. Although technically illegal, punishments are minimal for prostitutes and johns. A prostitute is more likely to have sex with a police officer than to get officially arrested by one. We estimate that there are 4,400 street prostitutes active in Chicago in an average week.

It will be interesting to see how this paper evolves. I find a couple of things fascinating about this summary, but once again we come up against the notion that much of the criminal activity and violence associated with the business is there not just because it's an illegal activity, but because commerce needs enforcement mechanisms, and where the police and law enforcement structure can't be used to make sure that transactions are protected, criminal elements step up to the task. This is much like the theories that the Mafia managed to get a good foothold in the New York City area because they were protecting the Italian neighborhoods from the Irish cops. In fact, as I read further this is exactly that situation, the cops are raping the prostitutes, and the pimps are protecting them.

Via Marginal Revolution, which I got to via Kottke, with more from Kerry Howley, Matthew Yglesias and Radley Balko

So, why is the 4th of July a particularly heavy day for hookers? Something about those "bombs bursting in air"?

Although I think the activities specified should be legalized, what I found interesting there was more the notion that transaction protection operations both have costs, but that they also appear with our without state sanction for operations where there's an opportunity for them to occur.

It's easy (for me, at least) to fall into the trap of thinking that the economic costs of protecting the transaction are external to the transaction. That, for instance, law enforcement is a fixed cost. Or even, to tie this in to the direction that the "wRONg Paul" thread is going, to assume that the enforcement mechanisms are the impure part of an interaction that exist only because the people in the interaction aren't up to a stronger moral standard. In fact it appears that enforcement mechanisms are inherent to the process of human transactions, and perhaps governments don't necessarily exist in that meta space that some of us have placed them in.