ISET

ISET Economist Blog

A blog about economics in the South Caucasus.

The Economics of Prostitution

When thinking of “market distortions” we typically imagine government regulations, taxes and subsidies that prevent market mechanisms from achieving an optimal outcome. For example, if you pay $100 for a 30-minute taxi ride (as is the case in many European capitals), you can easily relate it to a government regulation requiring all taxi drivers to be licensed (at a very high cost). In the absence of such a requirement many more drivers would be able to enter the taxi driving profession, increasing supply and reducing prices.

However, the government is not the only source of “market distortions”. Culture and religion also pose very serious constraints on the operation of markets (and government), potentially preventing them from achieving the “first best” outcome. For example, nepotism – the cultural norm in many non-European countries – can be said to interfere with the efficiency of labor markets. Depending on the cultural setting, the very “market” in which trade in certain goods and services occurs can been driven into underground, providing fertile ground for crime and corruption.

A good case in point is “provision of sexual services”. While often referred to as the world’s oldest profession, prostitution is treated very differently in different cultural setting. In some countries (like Singapore) it is permissible but unregulated, in others (e.g. the Netherlands) it is a regulated profession allowed only in brothels; in yet others, including Georgia, it is considered to be a crime. In countries in which prostitution has been legalized, it generates considerable revenues (the global revenue is estimated at more than USD 100 bln).

june13-2014-1

Ignoring the moral aspect of the problem, there are many economic (and not only) reasons to legalize prostitution.


ECONOMIC BENEFITS

It is no secret that the sex industry exists in every country, forming a substantial part of the underground economy. Legalization would help shed light on the shadow sex industry activities, providing possibilities for regulation and taxation. Tax income thus generated could be used to improve public services, such as education, giving young women other professional opportunities and in this way helping treat the (social) root causes of prostitution. In Nevada (the only US state where prostitution is legal), annual tax revenues exceeded 20,000 dollars female sex worker (Ayres, 2003).

For many developing countries, prostitution is major export industry and source of foreign earnings, a means of redistributing income on a global scale. For example, according to a 1998 Kyodo News report on South East Asia, “Between 1993 and 1995, it was estimated that prostitution in Thailand produced an annual income of between $22.5 billion and $27 billion.”


CRIMINAL JUSTICE BENEFITS

Driving prostitution into underground is a costly proposition, straining the police force and the entire justice system. While recent data on prostitution-related policing activities are not available, public spending on this issue is certainly non-negligible. Besides, legalization would solve the problem of overcrowded prisons. According to available data, in California alone more than eleven thousand people were arrested for prostitution in 2010. Not only would legalization reduce public expenditures, it would also relieve the police force of the duty to monitor streets, allowing it, instead, to spend more time and effort on preventing other, more serious crimes.

Another important benefit of legalization has to do with a reduction in the level of criminal activities that are linked to (illegal) prostitution. To begin with, countries that legalized prostitution experience fewer rapes and sex trafficking offences. Not less importantly, legalization gives prostitutes stronger protection against violence. You cannot call the police and report a crime while committing one by yourself. In countries where prostitution is illegal, female sexual workers often become objects of violence. Gary Ridgway (a serial killer who killed 48 women), claimed to be killing prostitutes knowing he would not be held accountable.


REDUCED HEALTH RISKS

Last but not least, legalization can greatly reduce the health risks related to sexually transmitted diseases (STD), such as HIV. Unregulated prostitution is one of the main sources of spreading STD. Thus, legalization (and regulation) would be a major prevention tool, requiring sexual workers to get regularly tested and improving their access to contraceptives, medical care and consultations. Not only would legalization reduce the incidence of STD, it would also reduce public expenditures on preventing and/or treating the consequences of STD. Data provided by the US Center for Disease Control and Prevention support this argument. Accordingly, Nevada – the only US state that legalized prostitution – has one of the lowest rates of STD in the US.

As illegal and unregulated prostitution is often linked to the drug industry, legalization can also help a country deal with drug addiction-related health risks. Drug dealers may often try to get prostitutes “on the hook” (or, rather, needle) in order to exercise better control and “employ” them as co-dealers. In case of legalization, brothels can protect employees and help them overcome addiction (such precedents are reported in Nevada).


WHAT ABOUT GEORGIA?

Taking into account the growing influence of the Orthodox Church on the Georgian government, parliament and society, legalization seems like a very long shot. Yet, while Georgia takes a lot of pride in its Orthodox Christian heritage, Christian dogma should not be the only guide for a country’s legislation. On the one hand, by prohibiting prostitution we will simply be closing our eyes to a phenomenon that has always existed and will continue to exist. At the very least, it is important to be aware of the costs associated with the “illegal” status quo and the benefits of legalization. On the other hand, as prostitution is invariably a “business” of the poor (see e.g. a recent study by Lena Edlund), measures to prohibit prostitution are likely to exacerbate poverty. Conversely, the economic benefits of legalization will disproportionately accrue to the poor, helping them escape from the vicious circle of poverty and a lack of economic opportunities.

In the meantime, Georgians will find the way to go around any cultural, religious and legislative restrictions towards “second best” solutions. A heartening example of the market’s ingenuity in overcoming manmade restrictions is being provided today by Uber – a new piece of booking software that allows smartphone users to hail private-hire cars from any location. As reported by The Guardian, London's cabbies –holders of lucrative licenses – are on a warpath while customers celebrate all the way to the bank (and anywhere else, office, home or the airport).

Rate this blog entry:
6 Comments

Related Posts

Comments

 
Guest - Simon Appleby on Saturday, 14 June 2014 15:13

Legalisation of prostitution in many Australian states lead to a huge increase in demand; once it was no longer unlawful to be a customer, the practice became normalised in many potential customers' minds and lost its stigma. While there may be many practical and economic benefits to legalisation, it does appear to exacerbate the increasing schism between love and sex noted in western societies over the past half-century. One could argue that this has benefits for individual liberty but destructive effects upon broader civilisation. Aldous Huxley's dystopian "Brave New World" considered an enslaved society with the elite controlling the masses by bland pop culture, mindless consumerism, abolition of family life and a commitment-free sexual culture that still makes for chilling reading eight decades on. It should give people pause for thought when politicians advocate such reforms as to what their representatives' true intentions are.

Legalisation of prostitution in many Australian states lead to a huge increase in demand; once it was no longer unlawful to be a customer, the practice became normalised in many potential customers' minds and lost its stigma. While there may be many practical and economic benefits to legalisation, it does appear to exacerbate the increasing schism between love and sex noted in western societies over the past half-century. One could argue that this has benefits for individual liberty but destructive effects upon broader civilisation. Aldous Huxley's dystopian "Brave New World" considered an enslaved society with the elite controlling the masses by bland pop culture, mindless consumerism, abolition of family life and a commitment-free sexual culture that still makes for chilling reading eight decades on. It should give people pause for thought when politicians advocate such reforms as to what their representatives' true intentions are.
Guest - Saba on Sunday, 15 June 2014 22:49

First of all thank you for your comment. So you mentioned about possibility of increased demand, I agree that it might "activate" a new costumers, however you referred to them correctly they are "potential costumers" and it is most likely this potential to be realized even if prostitution is illegal. If we want to persuade people that it is immoral then there are other ways to do so rather than just restrict, for instance we can just organize special campaign like the one I've seen called "REAL MEN DON'T BUY GIRLS" just to remind them that paying for sex is dishonorable.Similarly, if you think increased demand will make prostitution more popular, government can organize special programs which will inform young girls and women about the possible threats of prostitution. The other problem you mentioned to my mind is caused by lack of information. People who have an information and realize all the pros and cons can not be controlled or become enslaved. If you make a research now I am sure most of the people will be against legalization because it is common to think so, but if you carefully explain all the benefits it could bring i think they can change their mind. I agree that it has number of disadvantages as well. However if we consider all the cost and benefits it will be profitable for the society.

First of all thank you for your comment. So you mentioned about possibility of increased demand, I agree that it might "activate" a new costumers, however you referred to them correctly they are "potential costumers" and it is most likely this potential to be realized even if prostitution is illegal. If we want to persuade people that it is immoral then there are other ways to do so rather than just restrict, for instance we can just organize special campaign like the one I've seen called "REAL MEN DON'T BUY GIRLS" just to remind them that paying for sex is dishonorable.Similarly, if you think increased demand will make prostitution more popular, government can organize special programs which will inform young girls and women about the possible threats of prostitution. The other problem you mentioned to my mind is caused by lack of information. People who have an information and realize all the pros and cons can not be controlled or become enslaved. If you make a research now I am sure most of the people will be against legalization because it is common to think so, but if you carefully explain all the benefits it could bring i think they can change their mind. I agree that it has number of disadvantages as well. However if we consider all the cost and benefits it will be profitable for the society.
Guest - Simon Appleby on Monday, 16 June 2014 14:02

These are all interesting points and worthy of discussion. Another issue is how legalisation affects the status of women in society, as most prostitutes are female. Is it not a paradox for a society to say that women are possessed of inherent dignity and worth no less than that of men, and at the same time to legalise and regulate an occupation based on women's bodies being traded like rented mules?

These are all interesting points and worthy of discussion. Another issue is how legalisation affects the status of women in society, as most prostitutes are female. Is it not a paradox for a society to say that women are possessed of inherent dignity and worth no less than that of men, and at the same time to legalise and regulate an occupation based on women's bodies being traded like rented mules?
Guest - Saba on Monday, 16 June 2014 14:58

The same arguments can be applied to men's prostitution as well. However, to be honest I talked only about women's prostitution because there was no data available about men's one. Also this would involve homosexuality in a discussion (as most of men prostitutes are homosexuals) and that is another issue I did not want to touch in this blog . Besides, I seriously doubt that mules have a choice whether or not to be rented and they don't get any benefit from it, I think that comparison would be more relevant to the trafficking rather than prostitution.

The same arguments can be applied to men's prostitution as well. However, to be honest I talked only about women's prostitution because there was no data available about men's one. Also this would involve homosexuality in a discussion (as most of men prostitutes are homosexuals) and that is another issue I did not want to touch in this blog . Besides, I seriously doubt that mules have a choice whether or not to be rented and they don't get any benefit from it, I think that comparison would be more relevant to the trafficking rather than prostitution.
Guest - Florian Biermann on Monday, 30 June 2014 00:28

Is there a qualitative difference between prostitution and other forms of work? Somebody who exposes his body to dangerous and unhealthy work, say, at a construction site, is also like a "rented mule". Many kinds of work, not only prostitution, are about doing things that are unhealthy and unpleasant. Yet only when it comes to prostitution we make such a fuss about it.

Is there a qualitative difference between prostitution and other forms of work? Somebody who exposes his body to dangerous and unhealthy work, say, at a construction site, is also like a "rented mule". Many kinds of work, not only prostitution, are about doing things that are unhealthy and unpleasant. Yet only when it comes to prostitution we make such a fuss about it.
Guest - Lasha Chochua on Saturday, 19 July 2014 16:39

Finally, someone in ISET Policy Institute does not demand more regulations :)
But be aware, Legalized Prostitution might destroy The Civilization :))

Finally, someone in ISET Policy Institute does not demand more regulations :) But be aware, Legalized Prostitution might destroy The Civilization :))
Already Registered? Login Here
Register
Guest
Saturday, 18 August 2018

Captcha Image

Our Partners