Superfreakonomics_ global cooling, patri - Steven D. Levitt [18]
As just noted, customers pay about $16 more if they go through a pimp. But the customers who use pimps also tend to buy more expensive services—no manual stimulation for these gents—which further bumps up the women’s wages. So even after the pimps take their typical 25 percent commission, the prostitutes earn more money while turning fewer tricks:
The secret to the pimps’ success is that they go after a different clientele than the street prostitutes can get on their own. As Venkatesh learned, the pimps in West Pullman spent a lot of their time recruiting customers, mostly white ones, in downtown strip clubs and the riverboat casinos in nearby Indiana.
But as the data show, the pimpact goes well beyond producing higher wages. A prostitute who works with a pimp is less likely to be beaten up by a customer or forced into giving freebies to gang members.
So if you are a street prostitute in Chicago, using a pimp looks to be all upside. Even after paying the commission, you come out ahead on just about every front. If only every agent in every industry provided this kind of value.
Consider a different sales environment: residential real estate. Just as you can sell your body with or without the aid of a pimp, you can sell your house with or without a Realtor. While Realtors charge a much lower commission than the pimps—about 5 percent versus 25 percent—the Realtor’s cut is usually in the tens of thousands of dollars for a single sale.
So do Realtors earn their pay?
Three economists recently analyzed home-sales data in Madison, Wisconsin, which has a thriving for-sale-by-owner market (or FSBO, pronounced “FIZZ-bo”). This revolves around the website FSBOMadison.com, which charges homeowners $150 to list a house, with no commission when the home is sold. By comparing FSBO sales in Madison with Realtor-sold homes in Madison along several dimensions-price, house and neighborhood characteristics, time on market, and so on—the economists were able to gauge the Realtor’s impact (or, in the interest of symmetry, the Rimpact).
What did they find?
The homes sold on FSBOMadison.com typically fetched about the same price as the homes sold by Realtors. That doesn’t make the Realtors look very good. Using a Realtor to sell a $400,000 house means paying a commission of about $20,000—versus just $150 to FSBOMadison.com. (Another recent study, meanwhile, found that flat-fee real-estate agents, who typically charge about $500 to list a house, also get about the same price as full-fee Realtors.)
But there are some important caveats. In exchange for the 5 percent commission, someone else does all the work for you. For some home sellers, that’s well worth the price. It’s also hard to say if the Madison results would hold true in other cities. Furthermore, the study took place during a strong housing market, which probably makes it easier to sell a home yourself. Also, the kind of people who choose to sell their houses without a Realtor may have a better business head to start with. Finally, even though the FSBO homes sold for the same average price as those sold by Realtors, they took twenty days longer to sell. But most people would probably consider it worth $20,000 to live in their old home for an extra twenty days.
A Realtor and a pimp perform the same primary service: marketing your product to potential customers. As this study shows, the Internet is proving to be a pretty powerful substitute for the Realtor. But if you’re trying to sell street prostitution, the Internet isn’t very good—not yet, at least—at matching sellers to buyers.
So once you consider the value you get for each of these two agents, it seems clear that a pimp’s services are considerably more valuable than a Realtor’s. Or, for those who prefer their conclusions rendered mathematically:
PIMPACT > RIMPACT
During Venkatesh’s study, six pimps managed the prostitution in West Pullman, and he got to know each of them. They