What Do Prostitutes and Rice Have in Common?

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If you believe what you read, then the answer to that question is that they are both examples of one of economics’ most elusive objects: Giffen goods. But don’t always believe what you read.

A Giffen good is a product or service for which demand rises with price. In other words, if you hold everything else constant, but the good gets more expensive, the quantity consumed will increase.

In an excellent series of guest posts to this blog earlier this year, economist Robert Jensen described his personal quest to prove that rice is a Giffen good for peasants in China.

On The Economist magazine’s Free Exchange blog, the same claim is made about prostitutes:

Less attractive and even cheaper prostitutes may still be available, but for a variety of very good reasons, the customer will not desire the cheapest option, suggesting prostitution services can be classified as a Giffen good.

Are prostitutes Giffen goods? Absolutely not. And understanding why provides a useful economic lesson.

The comparison made on The Economist‘s blog is between two different types of prostitutes. As the blogger indicates, the cheaper prostitutes are less attractive and otherwise undesirable for a “variety of good reasons.”

The client who buys the services of these two types of prostitutes is buying two very different products. It is the case in every industry that high-quality products sell for more than low-quality products. Not everyone buys the cheapest car made, but that doesn’t mean that cars are Giffen goods. Not every restaurant meal is consumed at Taco Bell, that doesn’t mean that meals in restaurants are Giffen goods.

When we talk about the demand curve for a good, what we mean is how the quantity consumed for that exact same good changes with the price of that good while holding everything else constant (such as the consumer’s income, the price of other goods, etc). A moment’s reflection makes it obvious that the customer who purchases the high-price prostitute would demand just as much or more of her services if she were willing to do all the same things but at half the price. Similarly, the customer who chooses the low-price prostitute would also consume more of her services if her price were halved. If this is the case, the demand for prostitutes indeed slopes downward, just like the demand for virtually every other good known to mankind.

So how is it that rice in rural China might violate this rule? How could it be that when the price of rice rises, people actually consume more of it? Two factors are critical.

First, rice makes up a large share of the total expenditures of these Chinese peasants. Second, if they were richer, these peasants would prefer to eat less rice and more of other things, like meat; it is just that they are too poor right now to afford much meat and they have to eat something. When rice becomes more expensive, one effect of the higher price is to make the peasants want to consume less of it (just as johns do with prostitutes who raise their prices).

In economic parlance this is known as the substitution effect. But when the price of rice rises, it also has the effect of making the peasants poorer. Their incomes haven’t changed, but the main thing they buy with their money costs more, meaning that they have to cut back their consumption of something to stay within their budgets. This pushes the peasants away from consuming luxury goods like meat, and toward consuming basic goods like rice. This is known to economists as the income effect of a price change.

For staples like rice, the substitution effect and the income effect push in opposite directions. If the income effect is bigger than the substitution effect, higher rice prices lead the peasants to feel so poor that they end up consuming more rice.

So the answer to the question posed in the title of this blog post (what do prostitutes and rice have in common?) is definitely not that both are Giffen goods.

As a reward to those among you who were loyal enough readers to slog through the economics of the last paragraph, I offer a Freakonomics contest: the commenter who provides the best answer to the question of what prostitutes and rice have in common within the first 24 hours of this post will win their choice of Freakonomics schwag.

Addendum: The winners are announced here.


They are both older than history.


I can think more of differences than similiarities.


Kent Lassman

Despite innovative developments in the variety of associated complementary goods, the value of both prostitutes and rice has remained relatively stable since the dawn of civilization.


Both older then recorded time.


They're both staples of modern civilization.


They are two of the oldest products to be purchased and sold in the history of mankind.

Swati J

Both are ubiquitous.


I don't understand why prostitutes are always assumed to be women. A bit sexist, no?


Both rice and prostitutes are large industries in Southeast Asia, as a percentage of gross domestic product.

Wouldn't higher prices for prostitutes serve as some sort of signaling device, as well, thereby differentiating prostitute services? For example, a prostitute who charges more for her services may signal with her price that she is selective in clients, is 'clean' of STDs, and that her opportunity cost of time is more valuable in comparison of other prostitutes.


I saw that at least 2 people posted similar answers but with varying explanations.

Both prostitutes and rice are consumed at higher rates in an economic downturn. Rice's increased consumption is due to it being a cheap staple food, so it gets substituted for other more expensive foods. Prostitutes increased consumption is due to more women being unemployed which should both increase the supply of prostitutes and potentially lower the price of their services.


they both are ancient goods.

Brian Quinn

Are they both things that sell well in times of economic hardship or recession?


Has everyone on this blog and in this comments section forgotten that we are talking about actual people here?


The author says prostitutes are definitely not Giffen goods. I can see the sense of the argument against easily enough.

The analysis of the market qualities of rice left me with the question, is the author saying rice *is* a Giffen good or not? To me, it sounds like he is describing one but he doesn't come right out and say it is or it isn't so far as I can tell.

The last thing I read about Giffen goods seemed to indicate a fever in the economist community for proving that there was not such thing, not even the original potato in Ireland.


you have explained that in a certain demographic rice is a giffen good, however rice and prostitutes are both regular goods when given economies of scale


Both have been used for thousands of years, and both will be continued to be used for many more to come.

Chuck Vekert

Both are fungible goods. There are no brand names, by and large, and both can be shipped across national boundaries when there is an oversupply in one country and a deficit in another. Both goods are frequently exported from less developed countries to more developed ones. Both prostitutes and rice are substitutes for more nourishing fare, love and meat respectively, filling the soul and body when nothing better is available.


Interesting that not many people seem disturbed by the direct comparison of commodities and human beings.


Both cost money.


They are the two most widely purchased products in history.