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Bang for Your Buck: Pregnancy Risk as the Source of the Price Premium for Unprotected Sex

Manda, Constantine (2013): Bang for Your Buck: Pregnancy Risk as the Source of the Price Premium for Unprotected Sex.

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Abstract

Sex workers receive a price premium for unprotected sex. Research has inferred that the source of this premium is a compensating differential for STI risk. I introduce a compensating differential for pregnancy risk as a novel source through a simple model that predicts the price for unprotected sex increasing with the probability of pregnancy through decreased unprotected sex. I empirically test this using a rich panel dataset of 19,041 sexual transactions by 192 sex workers in Busia, Kenya collected during 2005 and 2006. I use the probability of pregnancy as an instrument for unprotected sex and run two-stage least-squares (2SLS) regression and find that a compensating differential for pregnancy risk is the source of the price premium for unprotected sex. The price premium for pregnancy risk is as high as USD 122 or about 16 times average price. I also test for a compensating differential for STI risk and clients' disutility for condoms, the other competing theories, and find that they are not statistically significant sources of the premium. Identifying and estimating sources of the price premium for unprotected sex will allow policymakers to implement interventions that will reduce both the supply and the demand for unprotected sex.

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