SUPPLY AND DEMAND | April 10th 2008

mistress_f/Flickr

What skills can earn a woman $5,500 an hour? Still reeling from Eliot Spitzer's surprise bouts of discretionary spending, Allison Schrager examines the supply and demand of high-end call girls ...

Among the many things we are left to consider in the wake of the Eliot Spitzer scandal, there is one I still can't quite get over: the staggering price of a high-end call girl. What service can anyone provide to justify up to $5,500 an hour?

Although sex is a unique commodity, it must still obey market principles of supply and demand. In a post last year on Free Exchange, The Economist's economics blog, I wrote about how the prostitution market is exceptionally sensitive to large fluctuations in wealth and expectations, and so it might be considered a lagging indicator. I mentioned that while most people consider it an extremely undesirable job, on the high end "it can be quite lucrative and requires few skills (though a fair helping of unequally distributed natural endowments)."

"Inferior skills?", commented someone under the name "spairme". "Obviously, you have not visited one...To be able to command premium pricing an [sic] any market, a service must be superior."

Both spairme and Spitzer left me curious to learn more about the economics of the world's oldest profession.

The demand side:

What explains the enormous income gap between high-end prostitutes and ordinary streetwalkers or even typical working women? I decided to conduct a rather unscientific survey of potential consumers in an airport executive lounge. In conversations with several men--a professional athlete and several business executives--I asked why it was more attractive to pay a premium than to solicit a woman on 11th Avenue, say. They all responded with groans and wincing. "That is just sick and sleazy," one man said, nearly shivering with disgust. "You could end up bringing home all sorts of diseases to your wife and it could be dangerous." Everyone hastened to clarify that these answers were based on hunches, not experience.

It seems purchasing sex is like buying shellfish: it should come from a reputable provider. Meeting a woman in a clean, well-kept environment signals higher quality and lowers the risk of an infection substantially.

Some argue that such no-strings transactions are ultimately less harmful to both career and marriage than taking a mistress. The men at the airport lounge also pointed out that the premium buys discretion. But at these prices, it is difficult to avoid a paper trail. Spitzer spent more than $80,000 on high-end prostitutes in one year. That's a lot of bank withdrawals.

On the website of the service Mr Spitzer patronised (which has since been disabled), escorts were ranked with twinkly diamond ratings; higher rankings demanded a higher price. Given that the women all looked equally beautiful and delivered similar promises, I couldn't help but wonder what gave them their value. A colleague with some experience arranging escorts for clients (when he worked at a rather nefarious-sounding private-equity firm) explained that a higher price often meant that a woman was either especially talented and versatile (ie, would provide a wider range of services), or simply more popular and experienced. I had been under the impression that this was a job in which seniority was undesirable. It depends on the woman, he said, just before emphatically denying ever using a call girl himself.

As with all things, a premium price signals quality. Men who seek out high-end prostitutes may question the value of a bargain. The industry feeds their narcissism (hence the name "Emperors club VIP"), and part of the fantasy is feeling special enough to purchase that multi-diamond woman.

The supply side:

The most obvious reason why high-end prostitutes can charge so much is that they are doing something illegal. Being arrested for prostitution will certainly hinder future earnings prospects in other industries (unless one manages to write a juicy tell-all about the experience; still, how many such books can the market support?). A premium fee is justified by the risks involved in working in an illegal industry, as well as the related stigma of being paid for sex.

In the paper  "A Theory of Prostitution", published in 2006 in the Journal of Political Economy, economists Lena Edlund and Evelyn Korn suggest there is a marriage market explanation behind why prostitutes are so well-paid:

[A] woman cannot be both a prostitute and a wife. Combine this with the fact that marriage can be an important source of income for women, and it follows that prostitution must pay better than other jobs to compensate for the opportunity cost of forgone marriage market earnings.

According to the Emperor's Club (defunct) website, the women they provide not only possess exceptional beauty, but also intelligence and sophistication. Some, the company went on to say, are successful professionals in other high-profile industries. Though this last claim seems dubious, the women must be exceptionally attractive and sufficiently intelligent to hold a customer's attention. Unlike their low-end counterparts, high-end call girls are expected to supply some level of companionship, and often accompany clients to dinners or parties. Because a beautiful and intelligent woman inevitably has other job (and marriage) options, a very high wage is necessary to encourage them to forgo other opportunities, and risk arrest, disease and shame.

While $5,500 and hour may sound high, not all of that goes to the woman. A substantial amount goes to the escort service itself. And escorts must spend a great deal maintaining their value without immediate compensation. Much time and money is spent on grooming: hair removal, expensive hair-cuts (one stylist I spoke to claims several of his clients are escorts, who spend at least $1,000 a month on extensions and colour) and regular exercise. Many women have had plastic surgery (particularly if they were once men) and maintain an expensive designer wardrobe. Frequent visits to the doctor are necessary to protect against sexually-transmitted diseases.

Ultimately, the decision to become a high-end prostitute is often not only an economic one, but is determined by a woman's attitude toward sex. For many women no amount of money would ever entice them into prostitution. You cannot deconstruct the economics of selling sex without acknowledging that, sadly, many women who enter the trade, even at the high end, have at some point in their lives been victims of abuse. Economic reasoning has little sway over how a woman values her body.

The market for sex ultimately determines a price like any other industry. Sex was one of the first goods ever traded. It commanded a price even before the days of shell companies, complex money-laundering schemes and diamond rankings. I look back on my post from a year ago and recognise my ignorance: high-end prostitutes do have a unique skill-set.

As spairme noted:

An unskilled and unenthusiastic provider (ie, acting skills) is not going to last long..... It's not just about being born beautiful and laying there like a beached starfish!

(Allison Schrager is an economist based in New York.)