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The Economics Of High-end Prostitution

"Eliot Spitzer’s recent involvement with an escort cost him not only the governorship of New York, but also some $1,000 an hour. What allows a high-end prostitute to charge a wage comparable to a top attorney, despite working in a market characterized by minimal skill requirements, little product differentiation, and non-existent barriers to entry?"

That's the opening of a fascinating new working paper by Lena Edlund of Columbia University and Joseph Engelberg and Christopher Parsons of UNC-Chapel Hill investigating the high-end escort market. They pull data on some 40,000 mostly U.S.-based escorts from an online review site where they find that the average hourly rate charged by escorts comes out to $280/hour.

That figure, earned over a full 40-hour work week, would put an escort into the 0.5 percentile of the U.S. income distribution. Of course, there probably are no escorts that work "full-time," but even working eight hours per week would put an escort into the top 20 percent of the income distribution, on par with "that of the median household whose head holds a Master’s degree."

So, how can escorts charge so much? The researchers argue that by choosing to work as a prostitute during their prime years of fertility (in the U.S. that's between ages 26-30), escorts forgo the economic benefits of marriage:

"...convincing a female to sit out the marriage market in her late 20s or early 30s would be particularly diffcult. A woman’s earlier years (e.g., around 20) are comparatively cheap, as she still possesses well over a decade of fertility, and can even afford a failed marriage before her capacity to bear children declines. Similarly, by the late 30s, the window for childbearing has (generally) past, implying a negligible opportunity cost on the marriage market."

This should mean that escorts in their mid- to late-20's cost more than other prostitutes, which the following chart from the paper appears to confirm:

The fact that transexuals and escorts who don't provide sex don't have a similary 'humped' age-earnings profile would seem to support the notion that forgone marriage opportunities drive escort pricing.

There, of course, could be other things that drive prices. For example, the researchers find that the "performance" ratings of escorts improves with age (up until 40 years old). It could be that the combination of youthful looks and ability peaks in the mid- to late-20's. But when the researchers controlled for factors like this, the premium remained.

--Zubin Jelveh