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An Empirical Analysis of Street-Level Prostitution

Combining transaction-level data on street prostitutes with ethnographic observation and official police force data, we analyze the economics of prostitution in Chicago. Prostitution, because it is a market, is much more geographically concentrated than other criminal activity. Street prostitutes earn roughly $25-$30 per hour, roughly four times their hourly wage in other activities, but this higher wage represents relatively meager compensation for the significant risk they bear. Prostitution activities are organized very differently across neighborhoods. Where pimps are active, prostitutes appear to do better, with pimps both providing protection and paying efficiency wages. Condoms are used only one-fourth of the time and the price premium for unprotected sex is small. The supply of prostitutes is relatively elastic, as evidenced by the supply response to a 4 th of July demand shock. Although technically illegal, punishments are minimal for prostitutes and johns. A prostitute is more likely to have sex with a police officer than to get officially arrested by one. We estimate that there are 4,400 street prostitutes active in Chicago in an average week.. 1 Unlike most other crimes, prostitution is based on markets, and thus potentially of special interest to economists. It is thus surprising that amidst the burgeoning literature on the economics of crime, there is little analysis of prostitution. Rao et al (2003) and Gertler et al. (2005) both find that the prices paid for a prostitute's services are substantially higher when a condom is not used. 2 Rao et al. (2003) studies Indian prostitutes; Gertler et al. (2005) focuses on Mexican prostitutes. Using an online database of client-based reviews of prostitution services in the United Kingdon, Moffatt and Peters (2004) estimate the determinants of price for a sexual act. Combining their results with survey data on prostitutes from Matthews (1997), they also compute average weekly earnings of a prostitute, finding that prostitutes earn about twice the weekly wage of a typical non-manual female worker and three times that of manual workers. Pickering and Wilkens (1993) also find high wages for prostitutes. Edlund and Korn (2002) argue from a theoretical perspective that one reason for this wage premium is the opportunity cost of foregoing marriage. The dearth of economic research on the subject of prostitution is driven, at least in part, by the difficulty of obtaining reliable data. Because of the illicit nature of the activity, standard data sources are uninformative. Rao et al. (2003) and …