An economic model of paid sex: Coase’s “The Nature of the Firm,” gains from trade, and the gift economy

In Roosh’s “Orgasm or Money” story, he describes encountering yet another semi-pro prostitute in Latvia,* and he ends by wondering about sexual cultures around the world:

Then I thought about what she had said, how it was stupid for American girls not to ask for money before sex. Was it possible that the sexual culture in America and other Western countries is fantasy, and that the best move for women was to get as much as she could out of a guy?

It’s possible that getting “as much as she could out of a guy” in terms of money is optimal for an individual woman in some circumstances, but if she plays that game she’s likely to find guys who are unwilling to make long-term investments in her. A guy who pays for sex expects to dump the provider: as the philosopher Charlie Sheen once supposedly said regarding prostitutes, “I don’t pay them for sex. I pay them to leave.”

But there are deeper problems.

Moving unpaid “labor” into the “paid” labor can have the nasty, unintended effect of monetizing a lot of activity that’s better left outside the conventional economy. Roosh is really describing is the difference between a gift economy and market economy, which Lewis Hyde describes in his eponymous book. Moving all or a great deal of sexual activity to a market economy will result in fewer people forming mutually beneficial relationships in which both reap gains from trade and specialization. Monetizing such relationships increases transaction costs for both buyers (men, usually) and sellers (women, usually), which can leave both sides worse off for transaction costs and other reasons.

Ronald Coase’s famous essay “The Nature of the Firm” (alternately, here’s Wikipedia on it) points out that firms exist to reduce friction / transaction costs that arise from alternate arrangements—like having a large number of consultants work together. When individuals are try to gain every last monetary or other advantage at the margin, they aren’t working towards the good of the whole. It’s cheaper and better for large groups of people to get lump-sum payments and then work together, to the best of their abilities, to further the total enterprise. That’s true of firms and of marriages.

A relationship can be conceptualized as a very small firm, as people continually rediscover—in “Marry Him! The case for settling for Mr. Good Enough,” Lori Gottlieb realizes that often “Marriage isn’t a passion-fest; it’s more like a partnership formed to run a very small, mundane, and often boring nonprofit business. And I mean this in a good way.” She realizes this after having a child on her own, however. Instead of figuring out that she can reap major gains from finding a decent guy and marrying him, she decides to date around and has a child via a sperm seller, only to find what should really be obvious and only isn’t to someone who’s been taught to never “compromise.”

As noted above, both parties reap gains from specialization in a firm or marriage: one person might like to cook, for example, while the other person does dishes, or runs errands, or builds stuff. Granted, this only works if both parties actually have useful skills: one time I was in a bar, listening to a nasty-sounding woman complain to two friends, one male and one female, about the guy she was divorcing, and the woman was going on about how she wouldn’t cook, or run errands, or acquiesce to any number of normal-seeming things. Finally I asked her, “What do you bring to the relationship beyond your vagina?” The guy started laughing, hard, and the other woman began chuckling, and the complaining woman didn’t know what to say, so she told me I was rude (true, although I prefer to call it “honest”) and asked how I dare ask her that sort of thing—I dare many things. But she didn’t and probably couldn’t answer the obvious question, perhaps because she already knew the answer in her heart.

The larger point contained in that anecdote, however, is that both parties gain, or should gain, from not having search for sex partners or pay for sex. In addition, long-term plans, like offspring, are easier to make.

Most of us don’t want to live in a purely market economy with every potential transaction: when our significant others come over, we don’t charge them for dinner, and, if we did, the charge would create very different expectations. Dan Ariely describes the expectation issue in Predictably Irrational and elsewhere. Once market norms, as opposed to gift-based norms, are activated, they’re very hard, and perhaps impossible, to de-activate.

Plus, to return to Coase, it’s very inefficient to price everything, and to continually think of pricing. It’s better for individuals and the economy as a whole if people trust each other and create value for each other without (always) charging for it. Relationships are, in part, a movement from market economies to gift economies, and in the process they create a lot of value, along with love, trust, and assorted other positive feelings. If there’s a large-scale culture shift away from non-paying relationships and towards women trying “to get as much as [they] can” out of guys, as Roosh describes, both sides lose, including the woman trading sex for money.

Granted, if a woman isn’t looking for long-term relationships or real help, it can make sense to move to a mercantile economy: this might be why a fair number of college girls get into stripping or even hooking, only to quit at or near graduation: they’re shifting from short-term expectations to long-term ones, and they know that violating social taboos can have a (major) economic payoff, but it’s easy enough for many of them to shift back into the “normal” relationship economy when their interests shift to long-term relationships.

* “Semi-pro” meaning someone who doesn’t explicitly advertise their wares but does eventually demand money for sex, or simply tries to drain guys through overpriced bar drinks and the like.

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