Economics of the Underground Sex Trade

The evolving economics of the underground sex trade impacts millions of individuals worldwide. It affects a multitude of other industries, from child care to the drug trade.  A recent study by the Urban Institute explores this mysterious area of economics by examining the trade in eight major U.S. cities.

Atlanta’s sex trade was found to be the largest of the cities studied. The underground sex trade in Atlanta is estimated at $290 million per year. This makes it larger than the Atlanta drug and gun trades combines, which are estimated at $117 and $146 million per year, respectively. Despite being illegal, the age old business of selling sex is booming.

Why is it illegal to pay for sex in the first place? As a general rule, consenting adults should be allowed to voluntarily exchange goods. That is the basic principle of a free market. There is no need for a third party to become involved, unless there is a dispute between the two primary parties. That is the system upon which all western economies, and even legal systems, are based.

Modern society does have limitations on voluntary exchanges, however. There are entire agencies, from the F.D.A., to E.P.A., to the Department of Alcohol, Tobacco, and Firearms, which are dedicated to regulating voluntary trade. At what point should governmental agencies become involved in free and voluntary exchanges? While this marker is subjective and blows with the political winds, generally it is when the voluntary trade is determined to be a detriment to society. It is when innocent third parties are harmed by the voluntary trade.

Using this metric, there are clearly circumstances in which innocent third parties are harmed by the sex trade. The easiest example would be under aged individuals entering the sex trade. Children simply do not have the capacity to consent to such an arrangement. Beyond making child prostitution illegal, however, there may be reasons that adult prostitution should operate under a regulatory framework or remain illegal. The coercive, and sometimes violent, nature of pimping is one issue that is explored in the Urban Institute study.

Clearly, enforcing an outright ban on the sex trade does not eliminate it. A market demand will find a supply as surely as water will roll downhill. Instituting a regulatory framework would increase the cost of sex trafficking, which may lead some to choose the black market anyway. At the same time, customers have an incentive to choose a legal product, even if it costs more. This raises the question of whether a legal, but regulated, sex trade would actually reduce the societal harm being caused, or if the harm would be minimized by keeping all prostitution illegal.

Is it the coercion involved, or the act of selling sex itself that should be illegal? What exactly are the harmful events involved in the sex trade, and how can they best be handled with the least restriction on free and voluntary trade?


Podcast – Underground Sex Trade – The Adam Goldfein Show – Hour 1

Podcast – Underground Sex Trade – The Adam Goldfein Show – Hour 2



Additional Resources

Urban Institute, Estimating the Size and Structure of the Underground Commercial Sex Economy in Eight Major U.S. Cities:

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