Trust and crime: Reputation in the (illegal) market for sex

Quartz has an article on how sex workers can vet new customers, in the age of the internet: Sex workers have created the perfect method for keeping people honest online. (I like the url better than the headline: http://qz.com/621994/trust-and-crime/

"If you work at Goldman Sachs in New York City and you want to tie up a woman and then have sex with her, there’s a good chance you’ll first have to speak to Rita.
She’ll insist on calling your office, speaking to the switchboard operator, and being patched through to your desk. Then she will want to check out your profile on the company website and LinkedIn. She’ll demand you send her message from your work email, and require a scan of either your passport or driver’s license.
...
"Mid-range prostitution is a relatively new market, enabled by technology. Before the internet, it was hard for escorts to find customers: They had to either walk the streets searching for customers (the lower end of the market), rely on word-of-mouth, or work with agencies. Walking the streets was dangerous, while agencies ate up a large share of workers’ profit and autonomy, and created a bottleneck to entering the market. The internet changed all that.

“Before the internet, agencies provided the steady flow of clients and screening, but their capacity was capped,” Baylor University economist Scott Cunningham said. Soon after Craigslist launched in 1995, US escorts quickly started marketing directly to customers online. This newfound ability to advertise on the internet grew the market, said Cunningham, because more women and men could work independently
...
"Even criminals need someone they can trust

"If you’re selling something illegal, you can’t rely on the law to make sure the buyer upholds their end of the deal. Once the bill comes, clients might turn violent, or turn out to be cops. That means trust commands a large premium and that’s the centerpiece of Rita’s business model: watertight background checks on would-be johns.

"Rita represents sex workers who offer BDSM in addition to sex. When rough play is on the list of services you offer, a high level of trust is essential; hence, Rita’s elaborate screening process, which can take days. “I am looking to weed out police and crazies,” she said. She estimates that only one in four potential customers ultimately passes. Those who do win some time with a professional escort/dominatrix, but it comes at a hefty price: Each hour can cost up to $800, and Rita’s cut is 30%."

What is the effect of legalizing indoor prostitution?

In 2009 I wrote a blog post about the unusual situation in Rhode Island, in which a change in legislation had inadvertently made only outdoor prostitution illegal:

Where it's illegal for prostitutes to give massages

The complicated legal situation in Rhode Island makes indoor prostitution legal, but requires masseurs to be licensed, so prosecutors "brought charges against alleged brothels for performing unlicensed massages."

(That was a situation that Cheap Talk characterized as "happy endings but no beginnings.").

But now a serious paper has been written on the effect of this change (which was reversed later in 2009):

Decriminalizing Indoor Prostitution: Implications for Sexual Violence and Public Health

Scott Cunningham, Manisha Shah

NBER Working Paper No. 20281
Issued in July 2014
NBER Program(s):   HE      LS   LE 

Most governments in the world including the United States prohibit prostitution. Given these types of laws rarely change and are fairly uniform across regions, our knowledge about the impact of decriminalizing sex work is largely conjectural. We exploit the fact that a Rhode Island District Court judge unexpectedly decriminalized indoor prostitution in 2003 to provide the first causal estimates of the impact of decriminalization on the composition of the sex market, rape offenses, and sexually transmitted infection outcomes. Not surprisingly, we find that decriminalization increased the size of the indoor market. However, we also find that decriminalization caused both forcible rape offenses and gonorrhea incidence to decline for the overall population. Our synthetic control model finds 824 fewer reported rape offenses (31 percent decrease) and 1,035 fewer cases of female gonorrhea (39 percent decrease) from 2004 to 2009.

The story has been picked up:
Here's Vox,  Rhode Island accidentally decriminalized prostitution, and good things happened
That post concludes as follows
"Why is this research important?

"According to a 2013 estimate, prostitution is an industry that generates over $14 billion annually in the United States. That's despite the fact that it's almost universally illegal across the country, save for some regulated brothels in some parts of Nevada. (Recall that Rhode Island recriminalized sex work in 2009.)

"Despite the industry being huge and persistent, almost everything we know about decriminalizing prostitution is rooted in speculation, rather than good data.

"Prior research has been plagued by problems, like relying on small sample sizes that aren't necessarily representative of the industry. According to the authors, most of the studies that exist examine street prostitution, even though 85 percent of all sex-work activity is considered part of the indoor market.

"Sex work is a predictably fraught policy issue, because it gets entangled in matters of morality. But this study adds to a body of research that suggests criminalizing prostitution causes higher rates of victimization and unsafe practices."
******

And the Washington Post weighs in here, with a wider discussion of prostitution and its repugnance,
**********

For those of you who don't know Scott Cunningham, he's a serious student of the dark side of the economy...see a previous post on his work here.

Alternatives to the NBA draft?

Scott Cunningham points me to this proposal to change the way professional basketball teams acquire new players. The present system rewards teams for poor performance by giving teams that lose lots of games a higher probability of very early draft choices. Early draft choices are important, because basketball is a game in which a single player can have a very big influence on team performance, and a small number of players are very good while still very young. So there may be an incentive, for a team having a poor season, to "tank" and try to be the worst team in order to have the highest probability of the first draft pick. The proposal would be to make draft choices independent of performance, and instead to alternate draft choices in a fixed schedule: The NBA's Possible Solution for Tanking: Good-bye to the Lottery, Hello to the Wheel
************

For more about the current draft system and how it is connected to player salaries, see Alicia Jessop on The Structure of NBA Rookie Contracts

The market for hitmen

If two men who have just met discuss a contract killing in a bar, there's an excellent chance that at least one of them is employed in some branch of law enforcement. So you would think that a website offering to match buyers and sellers in this market wouldn't have a lot of customers, but it appears from some recent court cases that you are overestimating the sophistication of internet shoppers. Here's a recent story from the LA Times. Apparently the proprietor of the site wasn't content to act as a matchmaker, he tried to play both sides of the market by selling hits and then contacting the intended victims and offering to be bought off. But it appears that the demand side was real, and some of them are serving time too...

Website matches targets and hit man
"The case began with a website called HitmanForHire.net. The designer thought it was a joke, but the FBI and Irish police soon learned that Essam Ahmed Eid, a Las Vegas poker dealer, was in business."
************

In another twist, the domain name http://hitmanforhire.net/ has been acquired by someone who apparently hopes to make a movie about the case, and from the look of it thinks it might be a comedy:.

HT: Scott Cunningham, who keeps an economist's eye on the dark side

Market design at the ASSA meetings in Chicago

First, good luck to all those on the job market at the ASSA meetings going on in Chicago now.


The ASSA meetings aren't only a job market, however, and there are a number of sessions in which papers on matching and market design are being presented . These are the ones I noticed on scanning the program:


Jan 06, 2012 12:30 pm, Hyatt Regency, New Orleans 
Transportation & Public Utilities Group

Auction Design (L9)

Presiding: ERIC RALPH (Federal Communications Commission)

Auction Design for Universal Service

LARRY AUSUBEL (University of Maryland)

Procurement auctions to supply broadband over differing regions with quality differentiation

GIUSEPPE LOPOMO (Duke University)

LESLIE MARX (Duke University)

SANDRO BRUSCO (State University of New York-Stony Brook)

Distributing Universal Service Subsidies by Competitive Bidding

THOMAS HAZLETT (George Mason University)

Discussants:

GREG ROSSTON (Stanford University)

***********


Jan 06, 2012 2:30 pm, Hyatt Regency, Columbus EF 
American Economic Association

Incentives and Matching in Marriage and Dating Markets (J1)

Presiding: GARY BECKER (University of Chicago)

Matching with a Handicap: The Economics of Marital Smoking

PIERRE-ANDRÉ CHIAPPORI (Columbia University)

SONIA OREFFICE (University of Alicante)

CLIMENT QUINTANA-DOMEQUE (University of Alicante)

Peer Effects in Sexual Initiation: Separating Demand from Supply

SETH RICHARDS-SHUBIK (Carnegie-Mellon University)

[Download Preview]

Terms of Endearment: An Equilibrium Model Of Sex and Matching

PETER ARCIDIACONO (Duke University)

ANDREW BEAUCHAMP (Boston College)

MARJORIE MCELROY (Duke University)

[Download Preview]

Dating Market Incentives to Improve Physical Appearance

LORENS HELMCHEN (George Mason University)

TIMOTHY CLASSEN (Loyola University Chicago)

Discussants:

SCOTT CUNNINGHAM (Baylor University)

JEREMY FOX (University of Michigan)

ALOYSIUS SIOW (University of Toronto)

JOHN CAWLEY (Cornell University)

************


Jan 06, 2012 2:30 pm, Hyatt Regency, Regency D 
American Economic Association

New Challenges for Market Design (A1)

Presiding: MURIEL NIEDERLE (Stanford University)

Individual Rationality and Participation in Large Scale, Multi-Hospital Kidney Exchange

ITAI ASHLAGI (Massachusetts Institute of Technology)

ALVIN E. ROTH (Harvard Business School)

Holdout in the Assembly of Complements: A Problem for Market Design

SCOTT DUKE KOMINERS (University of Chicago)

ERIC GLEN WEYL (University of Chicago)

[Download Preview]

Improving Efficiency in Matching Markets with Regional Caps: The Case of the Japan Residency Matching Program

FUHITO KOJIMA (Stanford University)

YUICHIRO KAMADA (Harvard University)

[Download Preview]

Price Controls, Non-Price Quality Competition, and the Nonexistence of Competitive Equilibrium

JOHN WILLIAM HATFIELD (Stanford University)

CHARLES R. PLOTT (California Institute of Technology)

TOMOMI TANAKA (Arizona State University)

[Download Preview]

Discussants:

PARAG PATHAK (Massachusetts Institute of Technology)

THOMAS PALFREY (California Institute of Technology)

PAUL MILGROM (Stanford University)

MURIEL NIEDERLE (Stanford University)

********


Jan 07, 2012 8:00 am, Hyatt Regency, Columbus KL 
American Economic Association

Price Theory and Market Design (D4)

Presiding: ERIC BUDISH (University of chicago)

Market Power Screens Willingness-to-Pay

ERIC GLEN WEYL (University of Chicago)

JEAN TIROLE (Toulouse School of Economics)

[Download Preview]

The Form of Incentive Contracts: Agency with Moral Hazard, Risk Neutrality, and Limited Liability

JOAQUÍN POBLETE (London School of Economics)

DANIEL SPULBER (Northwestern University)

[Download Preview]

A Supply and Demand Framework for Two-Sided Matching Markets

EDUARDO M AZEVEDO (Harvard University)

JACOB LESHNO (Harvard Business School)

[Download Preview]

Multilateral Matching

JOHN WILLIAM HATFIELD (Stanford University)

SCOTT DUKE KOMINERS (University of Chicago)

[Download Preview]

Discussants:

PIERRE-ANDRE CHIAPPORI (Columbia University)

DAVID SRAER (Princeton University)

THEODORE BERGSTROM (University of California-Santa Barbara)

ALI HORTACSU (University of Chicago)

**********


Jan 08, 2012 8:00 am, Hyatt Regency, Atlanta 
American Economic Association

Advance in the Theory of Contests and Tournaments (C7)

Presiding: RON SIEGEL (Northwestern University)

Head Starts in Contests

RON SIEGEL (Northwestern University)

[Download Preview]

Contests with Endogenous and Stochastic Entry

QIANG FU (National University of Singapore)

QIAN JIAO (National University of Singapore)

JINGFENG LU (National University of Singapore)

[Download Preview]

Sequential All-Pay Auctions with Head Starts and Noisy Outputs

ELLA SEGEV (Ben-Gurion University of the Negev)

ANER SELA (Ben-Gurion University of the Negev)

[Download Preview]

The Optimal Design of Rewards in Contests

TODD R. KAPLAN (University of Exeter and University of Haifa)

DAVID WETTSTEIN (Ben-Gurion University of the Negev)

[Download Preview]

Discussants:

RON SIEGEL (Northwestern University)

QIANG FU (National University of Singapore)

ELLA SEGEV (Ben-Gurion University of the Negev)

TODD R. KAPLAN (University of Exeter and University of Haifa)

**********


Jan 08, 2012 10:15 am, Hyatt Regency, Wrigley 
Econometric Society

Economics of Internet Markets (L1)

Presiding: JONATHAN LEVIN (Stanford University)

Multidimensional Heterogeneity and Platform Design

ANDRE FILIPE VEIGA (Toulouse School of Economics)

ERIC GLEN WEYL (Univerity of Chicago)

Price Discrimination in Many-to-Many Matching Markets

RENATO DIAS GOMES (Northwestern University)

ALESSANDRO PAVAN (Northwestern University)

Social Advertising

CATHERINE TUCKER (Massachusetts Institute of Technology)

Sales Mechanisms in Online Markets: What Happened to Internet Auctions?

LIRAN EINAV (Stanford University)

CHIARA FARRONATO (Stanford University)

JONATHAN LEVIN (Stanford University)

NEEL SUNDARESAN (eBay Research)

Discussants:

PRESTON MCAFEE (Research Yahoo!)

JONATHAN BAKER (American Universityi)

**********


Jan 08, 2012 1:00 pm, Hyatt Regency, Columbus CD 
American Economic Association

Designing Effective School Choice Mechanisms (I2)

Presiding: DIANE SCHANZENBACH (Northwestern University)

School Choice, School Quality and College Attendance

DAVID DEMING (Harvard University)

JUSTINE HASTINGS (Brown University)

THOMAS KANE (Harvard University)

DOUGLAS STAIGER (Dartmouth University)

[Download Preview]

Charter School Entry and Student Choice: The Case of Washington, D.C.

MARIA M FERREYRA (Carnegie Mellon University)

GRIGORY KOSENOK (New Economic School-Moscow)

[Download Preview]

Promoting School Competition through School Choice: A Market Design Approach

JOHN W. HATFIELD (Stanford University)

FUHITO KOJIMA (Stanford University)

YUSUKE NARITA (Massachusetts Institute of Technology)

[Download Preview]

From Boston to Shanghai to Deferred Acceptance: Theory and Experiments on A Family of School Choice Mechanisms

ONUR KESTEN (Carnegie Mellon University)

YAN CHEN (University of Michigan)

Discussants:

KEVIN STANGE (University of Michigan)

JUSTINE HASTINGS (Brown University)

ONUR KESTEN (Carnegie Mellon University)

FUHITO KOJIMA (Stanford University)

The assignation game: attempting to make an illegal market safe

Scott Cunningham (who studies risky behavior, crime, and illicit labor markets) points me to this story, which illustrates some of the difficulties of running a recommender system for an illegal transaction:  Fairleigh Dickinson professor accused of running prostitution website

"a professor at Fairleigh Dickinson University, was arrested Sunday while sitting in a Starbucks in Albuquerque, N.M., said Lt. William Roseman of the Albuquerque police."
...

"Flory’s website, Southwest Companions, had operated for months before several prostitutes in Albuquerque mentioned the site to police and they began investigating late last year, Roseman said.

"Users were split into three categories, and first-time visitors had to first gain the trust of Flory before gaining any access. Ordinarily this was done, Roseman said, by "sleeping with a prostitute." The prostitute would then report to Flory what sexual acts the two had engaged in, as well as how much money was exchanged.

"After that process, users were designated as "Verified," gaining access to a wider circle of women to choose from, Roseman said. If users became more frequent customers, their status was increased to "Trusted," which gave them access to more women and more portions of the website, including message boards explaining how to avoid the police, Roseman said.

"They had descriptions of my officers, phone numbers they used, videos of an attorney telling them that if you get busted by the police, here’s what you should do," Roseman said. "This was a website designed, managed and run fully for prostitution."

"The site also included message boards where users could rate the prostitutes with stars, including the rating of specific sexual acts, Roseman said.

"Roseman said Flory told police he did not make money off of the website and instead saw it as a hobby, "a safe place for guys to find female prostitutes," Roseman said."
*******

Another news account gives more details on the police operation, which made use of an informant:

"Seemingly aware of possible legal issues, the site notes its content is for "entertainment purposes" only.


"Police, however, contend that Flory knew he was promoting illegal activity. A detective infiltrated the site, gaining a “verified account” through an informant, according to an arrest warrant. Using the screen name “David8,” the warrant said Flory posted “helpful tips” on how to avoid arrest and removed users who he thought had contact with authorities.

"Through a subpoena to Internet domain registration company GoDaddy.com, police learned that Flory used his FDU e-mail account to create the site. A GoDaddy spokesman declined to comment on the case, but issued a statement noting the company "routinely" works with law enforcement. According to the warrant, Flory also used DCF8.org for e-mail on the prostitution site, with the domain matching his initials. "

Unraveling of NBA (and college) basketball

The NY Times Magazine writes about the Baylor freshman basketball player who is already an NBA draft prospect: Is it Dunk and Done for Perry Jones?

"In eighth grade, Jones was invited to attend a Baylor University basketball game on the campus in Waco, Tex. He was still a raw player, not widely known and in some ways perfect for the Baylor program, which was not attracting the best of the seasoned prospects.
...
"Jones declared on the ride home that he had found his school, and soon after, he committed to Baylor, meaning that the team’s coach, Scott Drew, offered him a scholarship and he accepted. It was only a verbal bond, one that could not be officially sealed until he reached his senior year of high school and signed an N.C.A.A. letter of intent, but he never wavered, even as coaches from more-traditional college-basketball powers, including Kansas and U.C.L.A., sent letters to his home.
...
"But just about everyone assumes that he will be a one-and-done player at Baylor, a pure rental who stays for a single season. That has become the norm for top college players. In fact, in some projections, as many as six of the top 10 picks in this spring’s N.B.A. draft are college freshmen."...
...(Players can no longer enter the N.B.A. straight out of high school, as Kobe Bryant, LeBron James and many others did.)
...
"You might assume that if Jones left school after just one season for the N.B.A., it would be a terrible disappointment to the coaches who recruited him when he was in his early teens — then had to keep in constant contact to make sure no one poached him. (Such vigilance is known as baby-sitting.) But that is not the case. If Jones leaves, it will further validate Baylor’s program and show everyone — the media, potential recruits, influential summer-league coaches who control players and sometimes broker them to colleges — that Baylor is a place that attracts top talent and produces N.B.A. millionaires. It will make it easier for Drew to recruit more players like Jones, who then, of course, also might also leave after one season. "

******
See my earlier posts Unraveling and uncertainty: The NBA draft, and Another step in the unraveling of the baskeball market about how the rule that players have to be 19 years old and a year out of high school before being drafted by the NBA has caused some players to play a year for European teams.



HT: Scott Cunningham

The Craigslist market for erotic/adult services

Scott Cunningham at Baylor, who is a serious student of illicit labor markets (e.g. the market for sex), writes

"Not sure if you saw this or not. Adult services censored on Craigslist

"It's not clear whether Craigslist has shut down the adult services section or not. That it is censored from the US but not from the rest of the country, though, suggests to some maybe.

"You've probably at least been peripherally aware that in the last month, approximately 20 state attorney generals had begun a new public campaign calling for Craigslist to shut down "adult services" altogether. FWIW, I have a chapter entitled "Sex for Sale: Online Commerce in the World's Oldest Profession" (with Todd Kendall) in the 2010 forthcoming book _Crime Online: Correlates, Causes and Controls_ edited by Tom Hold through Carolina Academic Press in which we explore, among other things, what happened the last time Craigslist implemented a major change to its erotic services section (namely, requiring all cities/markets to pay the $5-10 per ad and replacing erotic services with adult services, which was more heavily screened by Craigslist staff to identify prostitution advertisements). There was a temporary drop in ads, but they began to grow again as the weeks and months went on. But more importantly perhaps, there was a sudden spike in prostitution advertisements at a separate classified website operated by Village Voice called "backpage.com". Before Craigslist implemented that policy, backpage was never really used at all, but after that policy, it both saw a shortrun spike, and a longrun trend upwards in terms of daily posts, suggesting if nothing else that the cross-price elasticity of supply for these kinds of ads is not zero in the shortrun, but especially the longrun."

And here's the NY Times story: Craigslist Blocks Access to ‘Adult Services’ Pages, and two further stories that note that it will be easy for prostitution ads to relocate to other sites: How Censoring Craigslist Helps Pimps, Child Traffickers and Other Abusive Scumbags; and  Pimp Mobile--Craigslist shuts its "adult" section. Where will sex ads go now?  More recently, the "censored" label has been removed but the section remains closed: Craigslist Pulls ‘Censored’ Label From Sex Ads Area

Update (Sept. 15): ‘Adult Services’ Closed, Craigslist Says
"Craigslist, for the first time since it unexpectedly blocked sex ads from its site this month, said Wednesday that it had permanently closed its “adult services” section but defended its right to post sex-related ads as well as its efforts to fight sex trafficking.

"William Clinton Powell, director of customer relations and law enforcement relations at Craigslist, made the remarks Wednesday in testimony prepared for a hearing on sex trafficking of minors before the House Judiciary Committee.

“Craigslist has terminated its adult services section,” Mr. Powell said in his prepared remarks. “Those who formerly posted adult services ads on Craigslist will now advertise at countless other venues.”

Prostitution and the internet

Scott Cunningham and Todd Kendall have two papers on prostitution, which discuss among other things how sex is sold on the internet:

“Prostitution, Technology and the Law: New Data and Directions” in Handbook on Family Law and Economics, Edward Elgar, Forthcoming 2010.

“Sex for Sale: Online Commerce in the World’s Oldest Profession in Crime Online: Correlates, Causes and Controls, ed. Tom Holt, Carolina Academic Press, Forthcoming 2010.

Along with sites that offer sex for sale, there's been a growth in sites that offer customer reviews. E.g. PunterNet, a site that reviews British prostitutes (but is on a California computer) became briefly famous when a British politician announced that she would ask California's governator to shut it down: Terminate degrading site - Harman "Harriet Harman says she has asked California governor Arnold Schwarzenegger to shut down a website containing reviews of prostitutes."

Here's a paper on wages as a function of age for a similar website for US 'escort' services: The Wages of Sin by Lena Edlund, Joseph Engelberg and Christopher A. Parsons

More on recommender systems for escorts

Scott Cunningham of Baylor writes:

"I saw today your post on the screening sites that prostitutes use ["Problem customer" registries for prostitutes]. I just wanted to pass along to you a paper I'm currently working on with Todd Kendall called "Prostitution 2.0: Estimating the Effect of the Internet on the Market for Commercial Sex in the US."
http://business.baylor.edu/scott_cunningham/Research_files/pro20-4.pdf
"We have been surveying online prostitutes for the last 10 months using data collected from The Erotic Review, which is a large "mall" that clients use to record detailed information about prostitutes in various cities. In the course of the surveys, we have been studying the way in which the Internet has facilitated improved screening, and even in some cases, signaling between clients and prostitutes. One of the more ingenious things that we have found is a case of signaling from clients to prostitutes wherein they send letters of recommendation to prostitutes, usually in the form of sending along information [from] another prostitute with whom they've already visited. This, we argue, has enabled prostitutes to update their beliefs that a new client is not a cop (or a violent client) because these letters are relatively more expensive for cops to send. A case in point - see this story about two police officers who were sleeping with prostitutes in Beaumont, Texas allegedly in order to make a case on a drug trafficker. When the public learned, the men were fired, and the officers are now suing the Beaumont, Texas police department for wrongful termination. (It's suggestive that indeed the private costs of using these kinds of methods are prohibitively high for cops, which we argue is evidence that the costs of signaling type to prostitutes is such that the separating equilibria and not the pooling equilibria is more likely to be happening). "

Here is The Erotic Review, and here is what they say about customers getting recommendations from escorts:

"TER White List
If you have a good reputation with the ladies, encourage them to visit the TER White List and submit a referral for you. The TER White List is an easy way for providers to give positive references about members they have seen. "