Dear Economist

Should I take Lehman’s collapse lying down?

I work as an escort in Canary Wharf. I wonder if you might have some sound business advice on how workers in my industry should tackle the sudden drop in demand following the collapse of Lehman Brothers?
Miss C

Dear Miss C,

I wasn’t aware that escort services were pro-cyclical, but I shall take your word for it. You have three options, none of them perfect.

One: relocate. Canary Wharf is a pure banking play, and you could seek a more diversified market. The West End is full of hedge funds, oil barons and old money. However, I recognise that it will take some effort to find new clients. The economist Steve Levitt and sociologist Sudhir Venkatesh discovered, in a recent analysis of Chicago street prostitution, that the industry was very concentrated because prostitutes and clients would otherwise fail to find each other. You, of course, are not in quite the same game and may be able to relocate with ease.

Two: tough it out at Canary Wharf and hope that supply falls to match demand. Levitt and Venkatesh found that the supply of street prostitution was highly elastic in response to a demand surge. (The fourth of July holiday provokes a spike in trade for prostitutes – who knew?) Existing prostitutes would work longer hours, other prostitutes would travel to the area, and women who didn’t normally work as prostitutes at all would dabble in the business. This suggests that many of your rivals will find something else to do in the tough times.

Three: you may find that escort services are a little like estate agency, in that even severe demand shocks don’t tend to reduce fees. You’d find yourself well paid when in work, but frequently idle. That spare time could be used to study or find a part-time sideline.

I would give exactly the same advice to an estate agent.

Also published at ft.com.

4th of October, 2008Dear Economist • Comments off