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A FRIEND who worked at a nefarious-sounding private-equity firm in Argentina during their financial crisis had the task of escorting clients to the high-end brothels of Buenos Aires.
He was struck by how the market for prostitutes changed during the crisis. In the beginning most of the providers were Brazilian beauties, but after the real was devalued more Argentine women entered the market. My friend claimed they were lower-quality less attractive. When things got worse, the quality of the providers increased, but the price did not fall and they demanded dollars. He reckoned these women had a higher reservation wage and prostitution prices are sticky.
Similarly, a high-end provider in New York claims she can still charge higher prices, but customers demand less time. But Bronte Capital has found a counter example. He conducted a more scientific study, tracking the price of prostitutes in Latvia. Before the crisis Riga was a popular destination for those seeking sex tourism. But the financial crisis has hit the Latvian economy hard.
It is in the midst of a depression and still trying to defend its currency. This has made the price of prostitutes prohibitively expensive for tourists. So the market has responded:. The price — looking at websites I will not link for decency's sake — has fallen by at least two thirds in the past year — and the advertised price for a non-English speaking young woman is LVL30 — or less than 60 US dollars. I am sure the rip-offs are still there — but anecdotal evidence suggests the hookers no longer cost too much.
This does not control for the quality of providers. And it is different from the Argentine case because they did not defend their currency. That may have been bad for the Argentine economy, but good for its prostitutes. Join them. Subscribe to The Economist today. Media Audio edition Economist Films Podcasts. New to The Economist? Sign up now Activate your digital subscription Manage your subscription Renew your subscription.