Sex Markets: Denied Industry?

There's a new book coming out entitled Sex Markets: A Denied Industry by three European economists named Maria Di Tommaso, Steinar Strom, and Maria Laura Di Tommaso. I just finished reading the forthcoming Journal of Population Economics article of theirs entitled "Who's Watching? The Market for Prostitution Services", and learned a ton from it. I think the book is mainly a book-length treatment of the model. For instance, the table of contents is listed as:

Part 1: Studying Prostitution
1.1. Conceptualising Prostitution
1.2. Social Sciences and Prostitution
1.3. Economics and Prostitution

Part 2: A Reputation Approach to Prostitution
2.1. The Demand Side
2.2. The Supply Side
2.3. Equilibrium
2.4. The Market for Prostitution when Norms are Endogenous
2.5. Different Markets and Policies

Part 3: Empirical Application
3.1. The Demand Side: Clients of Street Sex Workers in the US
3.2. A Specific Segment of the Supply Side: Sexually Exploited Trafficked Women

Part 2 is essentially what looks like their "Who's Watching?" paper. Part 3 appears to be partly what is also recently published in their 2008 Applied Economics paper, "What Money Buys: Clients of Street Sex Workers in the US". Section 3.1 is probably just a reworked version of that paper. Part 3.2 looks new, and extremely valuable, given what I learned about international sex trafficking the other day from this DOJ report. Parts 1 are probably just a history of prostitution and a literature review.

The economic theory of prostitution that they put forth is really cool. It's very simple, but at the same time, I think dead on. Another theory of prostitution put forth in 2002 by Edlund and Korn emphasizes that female prostitutes are highly-paid, low-skill, labor intensive workers (which is something of a paradox), and argues that they receive such high payments to compensate them for their foregone marital opportunities. That is, prostitutes and wives are mutually exclusive (though Arunachalam and Shah find that that is not actually true empirically). Della Guista, et al. (2008) basically model prostitution demand and supply as a function of reputation, noting that prostitution bought/sold incurs reputational costs to the person. They then work out the first order conditions for sellers and buyers, and show the optimal amount of prostitution to be bought/sold assuming any is bought/sold in the first place, and then include a nice section in which social norms are endogenous to the amount of prostitution bought/sold in the market at all. The mathematics to make social norms endogenous was really simple, and I was kind of impressed that they managed so much with so little. Basically, they have a reputation function in the model in which a person receives some "net reputation" which is equal to their own "reputational capacity" minus the amount of prostitution they solicit/sell. To make social norms endogenous, they simply make that person "reputational capacity" equal to the amount of prostitution bought/sold in the market, which means that as prostitution increases, one's own reputational capacity increases, and in this model, the higher one's reputational capacity, the more one can "afford" to buy/sell prostitution. It may not sound like much, but it means that the buying/selling of prostitution has social externalities because it affects other people's own standards. If I told you that they lifted that part of the model from a 1980 Akerlof paper on identity and standards, would you be surprised? I wouldn't, and wasn't, and they did.

All in all, I think the paper makes a real breakthrough. I'm kind of surprised that it was only published in the Journal of Population Economics, to be quite honest. Not that that is a bad journal at all, but it wasn't where I would've expected it to be placed. But whatever, I'd take a hit there. So if you're interested in the paper, check it out. Obviously, Edlund and Korn (2002), which emphasizes marital opportunities, is not mutually exclusive to this reputational model, but intuitively, I think when it comes to purchasing sex - whether it be in the form of human beings who offer physical sex, or images of men and women having sex (ie, pornography) - reputation and stigma play a significant role in the decision calculus, and so it's helpful to have a model that formalizes this basic intuition.