The economics of prostitution

My ODI colleague in Southern Sudan is blogging about prostitution here and here. A few years ago Levitt (of Freakonomics: A Rogue Economist Explores the Hidden Side of Everything fame) and Venkatesh wrote a really interesting empirical analysis of Street Level Prostitution in Chicago. Public holidays command price premiums and bring out ‘part time prostitutes’ who normally wouldn’t ‘do tricks’ but the 4^th July price premium makes it worthwhile. Their work is now summarized in Trading Tricks: The Economics of Prostitution.

I have recently been discussing some research on sexual attitudes amongst university students in Lesotho with someone who has done some interesting comparative research on prostitution in Lesotho and Ghana. He found that in Ghana all of his (admittedly small) sample (of 10) prostitutes said that they would always use a condom. In Lesotho however, prostitutes charged between an extra M100 and M250 for not using a condom. This is despite the fact that the risk of catching HIV in Ghana is much lower than in Lesotho; the CIA World Factbook puts the rate at 1.9% in Ghana compared with 23.2% in Lesotho.

The behaviour, of course, influences the prevalence and the prevalence should influence behaviour. It seems though that there might be an element of inevitability about catching HIV in Lesotho, whilst in Ghana this might not be the case.

Why then, charge extra for not using a condom in Lesotho?

My guess is that the savvy prostitutes are automatically price discriminating! That is, they are splitting up their market and charging different customers different amounts depending upon their willingness to pay. This is exactly the same as giving discounts to students or to pensioners, or charging businesses more than individuals. The idea is to modify slightly the service in order to charge people closer to their marginal value. Or alternatively, to price differently to different groups depending upon their price elasticity. Genius!

My own experience

I lived in Paris once upon a time. In order to get home from my nearest metro station, I had to walk under a bridge and I could choose the path on either side.

On one side were always a small group of very beautiful prostitutes (note prostitution is legal in France). They were always very polite and friendly towards me and never hassled me. On the other side however, was a group of prostitutes who, shall we say, had seen better days. These never stopped harassing me and just wouldn’t leave me alone. (I must admit, I started to wonder who should be offering whom money.) I usually chose the slightly longer walk passing the nice ones.