Friday, December 28, 2007


Yes, this post is about the Economics of female breasts. It is inspired by are recent Times article on how young females act strategically to extract more and more from publishers as they reveal in successive photo sessions more and more their breasts. Once they have all uncovered, the market price drops markedly for any subsequent session.

What happens here is reminiscent of the ratchet effect of Regulatory Economics: in a principal-agent problem where a regulating principal tries to figure out the cost structure of the regulated agent. Any information that the agent provides is valuable to the principal only when revealed for the first time only, and it is irreversible. Thus agents try to extract some rent from principals in exchange of this information.

Going back to female breasts, it appears from the Times article that the women in question are participating willingly and knowingly in this game. They are in for the money, the glamor or whatever else. The article also relates how they are attracted by stars and seek them from their own will. The article also relates that some others find this "circus" very troubling, that it is degrading women, that this is not what the female emancipation was all about. Thus it should be prohibited.

Let us get back to Economics. Laws or constitutions typically protect you from sexual harassment. This is typically an inalienable right. Now what if you were willing to give this right up against money? You do this knowingly, after weighing the pros and the cons. Why would you not be allowed to sell this right? This is exactly the question that Kaushik Basu has asked. His response is that there are circumstances where this right should not be sold: while a worker may prefer a job with sexual harassment when given the choice, she may prefer even more an environment where sexual harassment is not possible because the wage would only slightly lower, but higher than a wage without sexual harassment (when it is a choice). It is really an argument about how the fact that there is an option reduces the value of the option. Al Roth concurs on an other dimension: some activities are so repugnant to others that they should be banned. I would prefer them to be discouraged, say, by having dwarf tossing events pay a special fee. Or gambling, horse meat, and obscene words. Or prostitutes.

We have now drifted all the way to prostitution: if both parties to a transaction are willing parties, why should this transaction be prohibited? (note the "if"). Is it that because such transactions have adverse impacts elsewhere? I may imagine it could render marriages less stable (or the opposite...), it could project a certain image on other women, etc. But I think we need to think really hard before prohibiting a transaction. In particular, we need to think beyond the projection of our own values onto others. We need to think rather in Coasian terms: if I want to engage in prostitution, then I should compensate those hurt by this in such a way that we find a Pareto improvement: everyone is better off.


Independent Accountant said...

What does "hurt" mean? Anyone can say he was "hurt" by an act that offends him. I am sure millions of people are "hurt" by others taking drugs. Should someone who uses cocaine have to compensate anyone offended by it? How much? If 10 million Americans are "hurt" by an act of prostitution, need the prostitute and his/her customer compensate the "injured" parties say, $1 each? This is nonsense. I don't see any "tort" here.
I remember the Terry Schiavo (TS)fiasco in Florida. Jeb Bush said TS's death would demean (is that a synomym for hurt?) us all and intervenied to keep her alive. I said nonsense. Let Jeb and those similarly offended take up a collection and pay Mike Schiavo to have him surrender his right as TS's next of kin. Would they pay? Of course not. I see no externalities the state should be interested in in prostitution. You have nothing here.

Vilfredo said...

I am not sure "independent accountant" applies Pareto Optimality appropriately in his example.

The status quo is no transaction. I want to rent a prostitute in such a way that everyone is better off. Thus I pay the prostitute, and I pay anyone that is offended by this single transaction. If I still think it is worthwhile, the transaction happens and everyone is happier.

In the Terry Schiavo case, the debate was about what the status quo was, hence it was not clear who should pay whom. That is what courts are for.

Bruce Webb said...

Prostitution is perhaps the classic case of imperfect information distorting a market transaction. What degree of coercion exists? A prostitute may be forced into the trade by direct coercion, i.e. the classic pimp/whore model. Or the coercion might be more indirect, if you have an economic system where worker productivity is not rewarded by an appropriate share of the product, then prostituting the daughters could well be seen as a method of societal taxation. It is really a market transaction is wealthy employers suppress wages to the point that their workers' daughters willingly or not submit to sex?

I don't see any realistic way to establish Pareto optimums here. You can try to control for some of the externalities but not all, even in the most regulated environment, say Amsterdam, sex with strangers whether for pay or not may be masks for other types of self-abuse. Like to drink or do drugs? not really a morning person? have some psychological issues that could really benefit from treatment? Well then get a job where typically employers will discount for that. Like cocktailing. Or at an extreme cocktending.

But these kind of markets don't clear in any a priori predictable way. In each case you would have to reduce the analysis to the particular transaction. I can reasonably predict the outcome of any cash transaction of anyone I know that might enter into said transaction, because I operate in a limited known environment. Which doesn't mean I can walk into a bar in LA and understand the background of the market transaction of the act of prostitution even though the outlines of the deal are clear as day. Some things are just not amenable to a textbook approach.

VIlfredo said...

I agree prostitution is a market where free will may not abound. But assuming that there is no coercion (as the original post assumes), I think the argument that a Pareto Optimum can be attained is valid. I suppose the Economic Logician was writing about prostitution markets that are more open, like in the Netherlands.