The Economics of Prostitution

An article in the Globe and Mail delves into the economics of the sex trade, particularly the government's intention to decriminalize and regulate prostitution. (Click here for article) There are so many things wrong with the government's plan that we're not sure where to start. The article's author, Professor Marina Adshade from Dalhousie University, delves on some of the more obvious points.

Any time a government institutes regulations, production costs rise. When costs rise, producers have an incentive to move away from the regulated market and into the 'black' market. This is true for all firms. We see this in the home renovation business where a large number of people work strictly for cash, without permits.

So, if I understand the government's logic, sex trade workers will be required to collect GST/HST and submit their quarterly forms. They will also be required to file income tax returns. Revenue Canada will be required to figure out just what deductions will be allowed as "legitimate business expenses". Will mandatory testing for STD's be covered by the medical system? I'm not sure I even want to know how they intend to enforce mandatory condom use. Stop a driver to check for DUI, but stop a sex act to check for a condom?

Then there is always the "lemons" problem. Sex trade workers that fail the STD test must return to the street. Asymmetric information then suggests that street workers have failed the STD test and therefore must lower their prices, increasing the willingness to accept riskier proposals.

Once again, we find that politician have completely ignored the economics of their social policies. Of course, we're getting use to it.