The Economics of Prostitution
The Price of a Trick
The fee for a trick varies with the type of sex act, and prostitutes seem to discriminate across clients in order to maximize profit. White men pay $8 to $9 more per trick than black customers, with Hispanic clients paying some amount in between. When bargaining, prostitutes will usually offer a price to a black customer but will make a white man throw out a number first. Repeat customers pay slightly less than new customers.
The overall price of a trick goes up by $2 if a condom is not used. Although the price premium increases with the risk associated with a particular sex act, it is much smaller than the 24 percent premium that another study reports in a survey of Mexican prostitutes. One possible way to understand this disparity is to look at where the point of bargaining begins. Using a condom is the norm in Mexico, unless a client bargains away from it, which can potentially induce large price increases. In contrast, no condom is the default in Chicago unless the customer bargains toward it, which might make it harder for the prostitute to credibly argue for a higher price.
Still, a $2 premium may seem paltry considering the enormous risk that comes with unprotected sex, not to mention that condom use is shockingly low. Levitt and Venkatesh found that condoms are used in only one of every four tricks, making the risk of contracting a sexually transmitted infection very high. These women face other perils as well. Prostitutes report that they are violently assaulted about once every month. Compared with jobs outside of prostitution, such as a daycare or babysitting job, prostitutes earn far more at about $25 to $30 per hour, or, roughly four times what they would take home otherwise. But because prostitution is such a dangerous, unpleasant, and stigmatizing job, are these women really earning enough to compensate them for the risks they bear?
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Image: Vikas Khot
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Prostitutes who work for pimps appear to do better than those who do not | |
From an outsider’s perspective, an $18 per hour wage premium doesn’t seem like a very generous enticement to do such a seemingly rotten job. However, Levitt says that from the prostitutes’ point of view and given the menu of options they have, they must believe that it is a fair compensation because they have chosen this profession. Many of them will do other work as well and prostitution is just part of a portfolio of ways that women get by in these communities. “Prostitution doesn’t seem to be a stark moral choice,” says Levitt. “It’s like a job. When it pays better, women will quit other jobs to do it.”
For example, Levitt and Venkatesh found that during the Fourth of July holiday, demand for prostitution in the Washington Park neighborhood shot up because of a large number of people who came to join the festivities in the park. As a result, the price for a trick increased by about 30 percent. To absorb this rise in demand, regular neighborhood prostitutes worked more hours while prostitutes from outside provided additional tricks. But there were other recruits, too. Women who were typically not prostitutes were willing to supply tricks at the higher price that accompanied the holiday spike in demand.
Crime and Punishment
In contrast to selling illegal drugs, there doesn’t seem to be much public will to punish prostitutes and even less to punish the men who frequent the prostitutes. “I think society has decided that prostitution is not a very grave offense, and it is treated accordingly,” says Levitt.
As a result, the risk of incarceration is low. Combining data on police arrests from the Chicago Police Department and the results of the authors’ own survey, the study estimates that prostitutes are arrested only once in every 450 tricks, but only one in ten of these arrests will lead to a prison sentence. Johns are arrested even less frequently, with only one john arrested for every 1,200 tricks.
But perhaps more striking is the rate at which a police officer can extort free sex from a prostitute. Levitt and Venkatesh found that about one in 30 tricks performed by a prostitute is a freebie to the police in return for avoiding arrest. In other words, a prostitute is more likely to have sex with an on-duty police officer than to be arrested by one.
“That is a statement about prostitution, and at its heart, it’s a statement about how confusing and topsy-turvy life in the inner city is when the police who are there to enforce the law end up being some of the lawbreakers,” Levitt says. The knowledge gained from the study on how the inner city works may be useful in understanding which avenues are available when forming public policy. “If the police are busier having sex with prostitutes than arresting them, then it gives more realism about what one can and cannot expect when designing policies for the inner city,” says Levitt.
[This article has been reproduced with permission from Capital Ideas, the research journal of University of Chicago's Booth School of Business http://www.chicagobooth.edu/capideas/ ]
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.
