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Thinking on the margin: prostitution (UPDATED)

One of the most important ideas in economics is that people think and act on the margin. By that I mean that we make our decisions as if we were looking at the costs and benefits of just one more. Just one more slice of pizza. Just one more minute on the bike in the gym. Just one more share of some stock bought. If we reckon the benefits of that one more to be greater than the cost of it, irrespective of what has come before and what may come after, we’ll typically do it. The point is that we optimise, or at least act as though we optimise. We may only optimise locally instead of globally (that last slice of pizza may have seemed like a good idea at the time, but it’s not much good for my health in general), but it’s still what we do.

The idea is by no means unique to economics. There is, at the least, an entire branch of mathematics devoted to it. But economists just love to point out that optimisation – and, therefore, thinking on the margin – applies to human behaviour just as well as it does to equations on a blackboard, and that realisation can sometimes lead to surprising, even counter-intuitive observations with serious consequences for public policy.

As I’ve mentioned before (here and here), Steven Levitt and Sudhir Venkatesh are currently finishing a paper on street prostitution in Chicago. They were able to study the provision of prostitution services during a predictable demand shock and discovered that the supply of prostitution services is rather elastic: a 63% increase in quantity was associated with only a 30% increase in price. More importantly, that increase came on three margins: an increase in supply from existing prostitutes (who, on average, only work 13 hours a week), a temporary in-migration of prostitutes from other areas and the temporary entry into the market of women who are not ordinarily willing to perform sex acts for money. Levitt and Venkatesh estimate that 43 of the 63% increase in the number of tricks came from existing prostitutes in the area and the remaining 20 from the in-migrating prostitutes and the temporary market entrants.

That third margin bears highlighting. Typical thinking about the topic holds that the choice to become a prostitute, if it is a choice at all, is a discrete [update:  I originally had “discreet”.  It’s certainly that 🙂] one; that women and a very few men first choose – or are compelled – to be a prostitute and only then consider what money they might make. The idea that some women might choose to start or stop being a prostitute in the face of a ten, five or even one dollar an hour change in the money available doesn’t make sense in this thinking. I believe that the reason for this is founded in a moral abhorrence at the very idea of prostitution – the belief that in addition to any social or economic conditions faced by prostitutes, the act of prostitution itself is immoral. Since it has become au fait, among Western intelligentsia at least, to never accuse people of direct moral failure, it has also become the norm to conclude that all prostitutes were misled or forced into their position and thus need to be rescued. The terrible issue of people trafficking naturally lends support to this idea.

I do not want to belittle the tragedy and travesty that is people trafficking. It is a truly awful phenomenon and the fact that it exists at all, let alone in countries that are supposed to be based on freedom of the individual as a founding tenet, is abhorrent. It needs to be stamped out.

My concern is to highlight that not all prostitutes are forced into their profession. There really are women who, faced with an outside option of $7/hour, are not willing to be a prostitute for $25/hour, but are willing to do so for $35/hour. I have no doubt at all that – and this is important – the same statement would be true if you multiplied all of those figures by 10.

The upshot of this is that, slaves aside (and that’s what people trafficking is – slave trading), you cannot simply save or rescue a prostitute. It is not a problem, if you consider it one, to be tackled. It is not something that you solve, once and for all. Prostitutes are people like everyone else and like everyone else, they think on the margin and respond to incentives. If your concern is that prostitutes live in poverty, that they are compelled into their work by economic hardship, then you must work to improve their outside options. But at the same time, you should recognise that you will not be stopping prostitution from happening; you will simply be raising the minimum asking price. That will lower the quantity demanded, but it will never remove it altogether.

Update (5 April 2008):

See my new entry here. It would appear that maybe even the figures for human trafficking are overblown.

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Sex for free

Following on from my earlier post noting (via Andrew Leigh) that Steven Levitt and Sudhir Venkatesh have been researching street prostitution in Chicago, Andrew managed to find a link to a preliminary draft of the paper. You can find it here. Andrew also noted that:

Levitt cited evidence that in the 1930s-50s, a very large share of men had their first sexual experience with a prostitute. With the rise of premarital sex, this is no longer true, so the market that’s left today is much seedier than in the past.

This would seem to imply that early sexual encounters once represented a sizable, or at least influential, portion of demand, which is interesting in itself.

Many modern-day feminists despair at the way that the so called “sexual revolution” has developed and I do wonder where the current arc of embracing sexuality will stabilise.

Here is a recent story from ABC News being shocked (shocked!) to discover that college parties are both racier and boozier than they used to be at some unspecified time in the past. They report (and fret) that girls seem to drink more at themed parties, where they also tend to wear less.

Here is a story about the merging of reality television and the public acceptability of sex for it’s own sake. A Czech brothel is offering it’s services for free in exchange for the clients’ permission to broadcast the event over the internet.

I suspect that the Czech offering is just the latest in a recent push for a form of authenticity or believability in pornography. It seems to go hand-in-hand with an increase in the popularity of amateur porn, which has two broad sub-categories: the professionally arranged and the truly amateur.

Truly amateur pornography, where the participants film or photograph themselves and share the material for free is arguably the ultimate sharing of the self in the web 2.0 paradigm [1]. It is a logical extension of the attention-seeking self-affirmation that we see in people’s embracing of a public side to their sexuality.

Professional outfits that seek out amateurs who are willing to be filmed (possibly for free) and then offer the material in the traditional business model of internet porn (give out teaser snippets for free and charge for the complete set) , seem to be the adult industry’s response to this shifting demand. In a way, the Czech brothel is just a new branch of this genre.

These developments are not without their concerns. Sara Montague – a presenter on BBC Radio 4’s Today programme – is clearly concerned, noting that much of the movement seems grounded in the hope of empowerment and self-confidence, but worrying that this serves indirectly to promote eating disorders among girls and the acceptance of rape among boys.

The main problem that Montague faces is that for most people, embracing public sexuality is non-harmful – not every girl gets an eating disorder and not every boy contemplates forcing himself on a girl – and is undertaken by choice. Montague is, in essence, faced with Douglas Adams’ cow that wants to be eaten. [2]

There is a saying that seeks to advise against supporting or encouraging prostitution: “No little girl ever says that when she grows up, she wants to be a prostitute.” The idea is a variation on Rawls‘ “veil of ignorance” and implicitly argues that the framing of a choice is of vital importance: that given a wider range of options than those she faces, no woman would choose to be a prostitute.

Montague may argue that just as the prostitute is compelled into her profession by a narrowing of her options, people are lead to an acceptance of public sexuality because of social conditioning. In her article she highlights the flood of media imagery seemingly designed to associate female success with sexiness. In other words, Montague is pointing out that Adams’ cow was genetically engineered to want to be eaten and asking if the cow then truly had a free choice. That question, of course, is moot when considering the cow in front of you. Its preferences may have been implanted, but as a conscious entity, you have to respect it’s choices. At most, you can try to stop future cows from being interfered with.

But to make the same argument for public sexualisation is still predicated on the idea that it is inherently a bad thing. I am not in any way trying to belittle the tragedy of eating disorders or defend the horror of rape, but the point is to weigh the benefits against the costs in aggregate. There is a parallel with opening a country up to trade and allowing jobs to be “lost” to, say, China. It is true that some people will lose their jobs and for them, the pain is tremendous; but it is also true that the vast majority of people experience a small improvement in their material lives because of the cheaper products. It is almost always the case that in aggregate, the latter outweighs the former and the social ideal is to open up to trade but have those that benefit compensate those that suffer.

The same, I think, applies to the progress of public sexualisation. By all means work to increase support for those burdened excessively by concerns of body image. By all means increase support to rape victims and ease the ability of the state to bring those guilty to justice. But that doesn’t mean we should fight to stop it altogether if people choose it freely and feel that it helps them, or even if they just enjoy it.

[1] Yes, I hate that word too; but what else should I have said?

[2] In The Restaurant at the End of the Universe (Foyles, Waterstones, Amazon), Adams had his characters encounter a cow in a restaurant that wanted to be eaten, going so far as to recommend particular parts of it’s body.

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Interesting empirics

I cannot wait to read the paper coming out of this:

Most women work 11 hours a week and … make $25-40 per hour [versus] $7-10 per hour … in the formal sector.  They are violently victimised once a month.

Prostitutes who work with pimps have higher wages and better conditions.

Supply is quite elastic [a 60% shock in demand occurred with only a 30% increase in prices], adjusting on three margins – higher labour supply by existing prostitutes, in-migration by prostitutes from other areas, and ‘temporary prostitutes’ joining the market.

Doing this research in America, where both the provision and the consumption of prostitution is illegal, is a major achievement for Levitt and Venkatesh.  Has anything equivalent ever been done in countries where the law is less restrictive?

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Fat = lower wages on average?

Via Steven Levitt, here’s an interesting paper by Roy Wada and Erdal Tekin:  “Body Composition and Wages”

This paper examines the effect of body composition on wages. We develop measures of body composition – body fat (BF) and fat-free mass (FFM) – using data on bioelectrical impedance analysis (BIA) that are available in the National Health and Nutrition Examination Survey III and estimate wage models for respondents in the National Longitudinal Survey of Youth 1979. Our results indicate that increased body fat is unambiguously associated with decreased wages for both males and females. This result is in contrast to the mixed and sometimes inconsistent results from the previous research using body mass index (BMI). We also find new evidence indicating that a higher level of fat-free body mass is consistently associated with increased hourly wages. We present further evidence that these results are not the artifacts of unobserved heterogeneity. Our findings are robust to numerous specification checks and to a large number of alternative BIA prediction equations from which the body composition measures are derived.

Our work addresses an important limitation of the current literature on the economics of obesity. Previous research relied on body weight or BMI for measuring obesity despite the growing agreement in the medical literature that they represent misleading measures of obesity because of their inability to distinguish between body fat and fat-free body mass. Body composition measures used in this paper represent significant improvements over the previously used measures because they allow for the effects of fat and fat free components of body composition to be separately identified. Our work also contributes to the growing literature on the role of non-cognitive characteristics on wage determination.

Looking very briefly through the paper, they don’t seem to be looking at what I would have thought an important factor:  relative obesity.  Wada and Tekin don’t seem to postulate a mechanism for how body fat leads to lower wages on average.  While I’m happy to accept that it may come about because of lower productivity, it also seems reasonable to ask if it’s also partially because of a selection bias by employers.  On that basis, looking at how much fat a person is carrying relative to their community average would seem to be important.

Update:  I’m obviously assuming both causality and direction of causality here, but my comment still holds.  A strong result on my suggested extra regressor would, to me, seem to provide evidence of that causality.

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What constitutes a racist statement?

James Watson, joint winner of the 1962 Nobel Prize in Physiology or Medicine for his contribution to “discoveries concerning the molecular structure of nucleic acids and its significance for information transfer in living material,” has been getting himself a public lashing (and, indeed, has lost his job) after making some controversial statements about race and intelligence. Here is an article from The Times:

The 79-year-old geneticist said he was “inherently gloomy about the prospect of Africa” because “all our social policies are based on the fact that their intelligence is the same as ours – whereas all the testing says not really.”. He said he hoped that everyone was equal, but countered that “people who have to deal with black employees find this not true”.

He says that you should not discriminate on the basis of colour, because “there are many people of colour who are very talented, but don’t promote them when they haven’t succeeded at the lower level”. He writes that “there is no firm reason to anticipate that the intellectual capacities of peoples geographically separated in their evolution should prove to have evolved identically. Our wanting to reserve equal powers of reason as some universal heritage of humanity will not be enough to make it so”.

He claimed genes responsible for creating differences in human intelligence could be found within a decade.

The upset has revolved largely around his quotes included in the first paragraph above, but it’s the second paragraph that I want to focus on.

For the record – and I want to stress this – I believe that early childhood environmental factors play by far the greatest role in determining how a person will score in standardised tests of mental aptitude later in life. Steven Levitt (of Freakonomics fame), working with Roland Fryer, has a working paper that I find compelling enough. Here is the paper. Here is the abstract:

On tests of intelligence, Blacks systematically score worse than Whites. Some have argued that genetic differences across races account for the gap. Using a newly available nationally representative data set that includes a test of mental function for children aged eight to twelve months, we find only minor racial differences in test outcomes (0.06 standard deviation units in the raw data) between Blacks and Whites that disappear with the inclusion of a limited set of controls. Relative to Whites, children of all other races lose ground by age two. We confirm similar patterns in another large, but not nationally representative data set. A calibration exercise demonstrates that the observed patterns are broadly consistent with large racial differences in environmental factors that grow in importance as children age. Our findings are not consistent with the simplest models of large genetic differences across races in intelligence, although we cannot rule out the possibility that intelligence has multiple dimensions and racial differences are present only in those dimensions that emerge later in life.

That said, I want to make a controversial statement of my own: While Professor Watson’s comments will certainly be popularly perceived as racist and might well be able to be regarded as an incitement to racism, they are not necessarily racist in and of themselves. Indeed, without ever having met him, I seriously doubt that Professor Watson has anything other than the highest regard for any member of any race.

Watson simply gave a statement of his beliefs about the facts of the world. Those beliefs may be controversial and even wrong, but that alone does not imply any kind of moral judgement on his part. Let me give a couple of examples to illustrate my point:

  • I believe that white Australians, on average, have worse eyesight than Australian Aboriginals. That does not imply that I think that white Australians are somehow intrinsically less human than Australian Aboriginals. It does not in any way condone or encourage discrimination against white Australians.
  • I believe that women, on average, are weaker and possess less physical endurance than men. That does not mean that I think that all women are weaker than all men, or that men are somehow more worthwhile than women. I pass no moral judgement when I make this statement.

I will grant you that Watson’s ideas are dangerous, but he should be challenged to justify them; he should not be vilified for expressing them. Steven Pinker wrote an article on this very topic for the Chicago Sun Times in July 2007. I’d strongly encourage you to click through and read it all, but here are a few highlights:

By “dangerous ideas” … I have in mind statements of fact or policy that are defended with evidence and argument by serious scientists and thinkers but which are felt to challenge the collective decency of an age.

Dangerous ideas are likely to confront us at an increasing rate and we are ill equipped to deal with them. When done right, science (together with other truth-seeking institutions, such as history and journalism) characterizes the world as it is, without regard to whose feelings get hurt. Science in particular has always been a source of heresy, and today the galloping advances in touchy areas like genetics, evolution and the environment sciences are bound to throw unsettling possibilities at us.

What makes an idea “dangerous”? One factor is an imaginable train of events in which acceptance of the idea could lead to an outcome recognized as harmful … [T]he fear is that if people ever were to acknowledge any differences between races, sexes or individuals, they would feel justified in discrimination or oppression. Other dangerous ideas set off fears that people will neglect or abuse their children, become indifferent to the environment, devalue human life, accept violence and prematurely resign themselves to social problems that could be solved with sufficient commitment and optimism.

Should we treat some ideas as dangerous? Let’s exclude outright lies, deceptive propaganda, incendiary conspiracy theories from malevolent crackpots and technological recipes for wanton destruction. Consider only ideas about the truth of empirical claims or the effectiveness of policies that, if they turned out to be true, would require a significant rethinking of our moral sensibilities. And consider ideas that, if they turn out to be false, could lead to harm if people believed them to be true. In either case, we don’t know whether they are true or false a priori, so only by examining and debating them can we find out. Finally, let’s assume that we’re not talking about burning people at the stake or cutting out their tongues but about discouraging their research and giving their ideas as little publicity as possible. There is a good case for exploring all ideas relevant to our current concerns, no matter where they lead. The idea that ideas should be discouraged a priori is inherently self-refuting. Indeed, it is the ultimate arrogance, as it assumes that one can be so certain about the goodness and truth of one’s own ideas that one is entitled to discourage other people’s opinions from even being examined.

Now, if you’re still with me, go back up to where I quoted the article from The Times and reread the second paragraph. He is not being racist here. He is being controversial. Unfortunately, that seems to have been enough for him to be fired.

As a bit of a plug for my newfound profession … After Professor Pinker’s article was published, Steven Levitt noted:

What did strike me about the list of questions was how many are linked in some way to economists. Larry Summers comes to mind on gender differences and shipping pollution to Africa, Alan Krueger on the education of terrorists, Milton Friedman on the legalization of drugs, Richard Posner on a market for babies, Gary Becker on a market for organs, and even John Donohue and me on legalized abortion and crime. I’m not saying these ideas necessarily originated with economists, but that, at a minimum, economists often find themselves on the “wrong” side of dangerous ideas.

I would love to see what would happen if economists got the chance to run the world. My guess is it would be fun for a while, but the ending wouldn’t be happy.