The Economics of Prostitution
espite being called the oldest profession in the world, little is known about how this unique market works. A recent study sheds light on the business of selling sex in the city of Chicago and finds that it is much like any other business.
Most crimes involve a victim and a perpetrator. The perpetrator typically looks for his victim and the victim avoids the perpetrator as much as he can. The crime of prostitution, however, is quite different. There are two parties involved but it isn’t clear who the perpetrator is and who the victim is. Moreover, it is in the interest of both the prostitute and the client to do their best to find one another. As a result, prostitution operates just like a market: it is populated by buyers and sellers who mutually benefit when they come together to perform a transaction.
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Image: Vikas Khot
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Interesting questions emerge when one thinks of prostitution as a market | |
Interesting questions emerge when one thinks of prostitution as a market, but there is surprisingly little research on the economics of this particular profession. How do prostitutes and their customers, or “johns,” find one another? How much do prostitutes charge for a service, or “trick,” and how is that price negotiated? If a john prefers not to use a condom, how much more does he have to pay? How does a prostitute’s wage compare to what she earns for doing other jobs? What happens when there’s a sudden surge in demand for prostitutes, and how do prostitutes meet this demand? The difficulty of obtaining reliable data is partly to blame for the dearth of empirical analysis on the subject.
In a recent study, “An Empirical Analysis of Street-Level Prostitution,” University of Chicago professor Steven D. Levitt and Sudhir Alladi Venkatesh of Columbia University uncover intriguing answers to these questions by using publicly available information from the Chicago Police Department and, more importantly, detailed and real-time transaction data for over 2,200 tricks performed by about 160 prostitutes in three Chicago neighborhoods that the authors collected with the help of pimps and prostitutes. The bulk of this massive data undertaking was done by trackers who were hired to follow prostitutes for two years. The trackers are mostly former prostitutes. They stood on street corners and sat in brothels, recording valuable information on every trick performed immediately after a customer left. Embedding data trackers in the daily activities of prostitutes and collecting data in real time has the potential to generate more accurate information than standard survey methods. “The prostitutes know the data collectors, trust the data collectors, and hopefully will be honest with the data collectors,” Levitt says.
The study offers a rare glimpse into the business of prostitution, as well as a unique window to view the workings of the inner city of Chicago that may have been difficult to reveal otherwise. “In the end, our study is not just about prostitution, but also about the lives of the people of the inner city,” Levitt says.
Location and Organization
Prostitutes want to be where their customers can easily find them, so they tend to cluster in areas well-known to their clients much like stores do in shopping malls. Traditional marketing channels, however, are not open to them. Thus, plying their trade along stretches of major roads is an easy way for customers to survey the market without appearing suspicious. Statistics on official arrests from the Chicago Police Department from August 19, 2005, to May 1, 2007, suggest that prostitution activity is highly concentrated. Nearly half of all prostitution arrests occur in a tiny one-third of one percent of all blocks in the entire city of Chicago.
Drug selling incidents–another market-based crime– likewise occur in far fewer blocks compared with other crimes such as assault, burglary, and theft. However, drug selling is not as concentrated as prostitution. Drug dealers have to be mobile because the law on illegal drugs is more heavily enforced. Moreover, a typical drug buyer will purchase drugs more frequently than a typical john will visit a prostitute. As a result, dealers tend to know their clients better and have other ways of communicating where they will be and how to make a transaction. Prostitutes, on the other hand, deal mostly with strangers.
Looking beyond official statistics, Levitt and Venkatesh gathered and analyzed their own data, beginning with the Roseland and Pullman neighborhoods on the far South Side of Chicago. Although these neighborhoods are adjacent to one another and share similar economic and demographic characteristics, prostitutes in Roseland work without pimps while all street prostitutes in Pullman work with one of four pimps in the area. After approximately 16 months, the authors decided to include the Washington Park neighborhood when a local police campaign drove prostitution in Roseland down by a third and two pimps in Pullman were forced to close shop. Some of the women who were part of the study moved their business to Washington Park.
Prostitutes who work for pimps appear to do better than those who do not, typically working fewer hours and performing fewer tricks but still earning more money. Levitt and Venkatesh found that clients pay about $16 more per trick for women working with pimps, although some of that extra revenue goes to the pimp in return for setting up clients and protecting them against abusive customers. But even after subtracting fees for these services, a prostitute managed by a pimp receives a much higher hourly wage than if she had to fend for herself. Comparing the earnings of a subset of Roseland and Pullman prostitutes, the authors estimated that women who work without pimps earn about $25 per hour while those working with pimps earn 50 percent more.
It isn’t clear why pimps would be willing to pay a rate that is above the minimum required, or what economists call an “efficiency wage.” One possible explanation is that it’s hard for pimps to always keep an eye on the women they manage. Pimps want repeat customers, so they have to make sure that the prostitutes are serving their clients the way the pimps would want them to. By paying more, pimps effectively raise the penalty associated with being fired, which will hopefully induce better behavior on the part of the prostitutes.
Single Page View
So in any Government department there are plenty of touts and agents created by the system designed by politicians and bureaucrats. They provide mental comfort with minimal law enforcement,messy infrastructure, chaotic unhygeinic environments where apparent chaos seems to prevail. But it is perfect environment as in prostitution. Hence wherever we have a sales tax office, a court, a Regional Transport Office (RTO), any tax collection spot. They all resemble the red light districts. Touts hanging around, and any innocent could not find the office or the officer but the touts are so easy to find. They come to you at every corner and provide the exact need without much briefing or explanation. One instruction or a sign and anything can be arranged depending on the value. So any Tax design that expects compliance at the end of chaotic supply chain where both the seller and buyer can gain through evasion is a bad design. Tax evasion at that last stage with the given environment as described above could never get compliance. We can conclude that India may be the only country that even if there were ZERO taxation there will be rampant evasion!! Make sense of that Mr Levitt and you could actually have a way to control prostitution.
