The Sub-Optimally Thin Market In Prostitution
Senior Editor, CNBC.com
The Brits are aghast at revelations that star footballer Wayne Rooney patronized the services of a semi-professional prostitute named Jennifer Thompson.
Everyone wonders what would drive Rooney, who could presumably bed many women who wouldn't require payment, into the arms and other biological features of a professional. Chris Dillow at Stumbling and Mumbling says the answer is the implied promise of non-disclosure that prostitute offer their customers.
"In selling her story, Ms. Thompson has broken the code that prostitutes, like priests and lawyers, do not divulge their dealings with clients," Dillow writes.
So why did Thompson violate the code of prostitution? Dillow thinks part of the problem is that Thompson was only a semi-professional. Her circle of friends is composed of party-girls rather than full-time sex-sellers. So she may not have fully internalized the code.
But a bigger issue is the unenforceability of the non-disclosure contract. Rooney cannot sue because Thompson lacks the means to compensate him. And the lawsuit would not stop the story from getting out anyway. (And other means of enforcing the contract, including violence and threatening a loss of reputation, don't work either.)
"Put together, these issues imply that there is a potential market for lemons problem between famous men and prostitutes," Dillow writes. "Fearing that prostitutes might sell their stories, men will tend — at the margin to avoid them. This will reduce demand even for good prostitutes, who in turn might withdraw from prostitution into near-substitute professions such as acting, modeling or PR. The upshot will be a sub-optimally thin market. In this sense, Ms. Thompson's behaviour has potentially serious consequences."
To put it differently: there would be a higher demand for good prostitutes if men trusted them to comply with the implied non-disclosure deal. The lower demand drives women who would otherwise be good prostitutes into other occupations.
Let's go a step further than Dillow.
The existence of various legal and social arrangements that makes prostitution less attractive may not be accidental. Although the arrangements may diminish the utility of both would-be prostitutes and their would-be customers, there are likely many externalities that make this an economically rational situation. Most people would probably like fewer women to choose prostitution as a profession, even if the alternatives are modeling, public relations or investor relations. So it shouldn't be surprising that our legal structure encourages this choice.