The Digital Sin City: An Empirical Study of

[Pages:45]The Digital Sin City: An Empirical Study of Craigslist's Impact on Prostitution Trends

Probal Mojumder University of Minnesota Carlson School of Management

United States mojum003@umn.edu

Jason Chan University of Minnesota Carlson School of Management

United States jchancf@umn.edu

Anindya Ghose1 New York University Stern School of Business

United States aghose@stern.nyu.edu

Abstract

The Internet facilitates information flow between sex workers and buyers, making it easier to set up paid sexual transactions online. Despite the illegality of selling sexual services online, the Communications Decency Act shields websites from liability for unlawful postings by third parties. Consequently, the websites like Craigslist have become a haven for prostitution-related ads. With increasing number of prostitution sites launched over time, it is imperative to understand the link between these sites and prostitution trends. Specifically, in this paper, we quantify the economic impact of Craigslist's entry on prostitution incidence, and identify potential pathways in which the website affects the sex industry. Using a national panel data for 1,791 U.S. counties from 1999 to 2008, our results suggest that entry of Craigslist to a county is related to 7.57 percent increase in prostitution cases. In addition, the analyses reveal that site entry generates a new market beyond that operated by organized vice industry, which is largely made up of sex workers in the 41-50 age group. Further, website entry has a stronger impact in counties with no prior cases of prostitution. Also, site entry leads to a spillover of prostitution incidence towards neighboring locations without Craigslist. Finally, we rule out the net effect of policing efforts in curbing prostitution against actual market increase in prostitution cases due to Craigslist, providing evidence to suggest that the efficiency in law enforcement towards curbing online prostitution is unlikely to contribute towards the positive relationship observed in this study. Our results contributes broadly to the emerging literature that researches the societal challenges associated with online intermediaries and Internet penetration, and serve as guidelines for social and legal policies for regulating the sex industry in the Internet era.

Keywords: Craigslist; Classified ad websites; Online Intermediaries; Online Platforms; Prostitution; Commercialized Vice; Vice Crimes.

1 Authors thank Ravi Bapna, Alok Gupta, and seminar participants at the 2015 Conference on Information Systems and Technology (CIST), and workshop participants at the Information and Decision Sciences department Friday workshops at University of Minnesota for extremely valuable suggestions. We acknowledge SOBACO, , for financial support towards this research. The usual disclaimers apply.

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1. Introduction

In recent years, the Internet is transforming the sex trade. Perer (2012) portrays the Internet, as a

"virtual red-light district" that plays the intermediary role of facilitating information flow between

sex workers and buyers, making it easier for individuals to strike mutually satisfactory deals, and

engage in paid sexual transactions. Even in the United States, where prostitution and its facilitation

are illegal everywhere except Nevada, the marketing and arrangement of commercial sex is moving online.2 In particular, online classified advertising sites and underground "entertainment"

sites have become the go-to avenues to advertise and arrange meetings for paid sexual services.

Despite the illegality of selling sexual services online, the Communications Decency Act (CDA) gives websites immunity from liability for unlawful postings by third parties.3 Consequently, the

websites like Craigslist, often known as the "Wal-Mart" of online sexual services, have become a haven for prostitution-related ads.4

Craigslist is the earliest and largest online classified service website that offers a dedicated

section for prostitution ads. Advertisements for sexual services were initially posted under the

section "Erotic Services," which was subsequently renamed as "Adults Section" in 2009 after

numerous complaints made towards Craigslist. The website faces intense public scrutiny over the

years, as many believed that the website's operators have knowingly allowed ads that offer sexual

services for money to be posted on the site. The continuous pressure from a group of state attorneys

2 An in depth cover story titled "More bang for your buck" on prostitution and the internet was published in The Economist on August 9th, 2014. Source: 3 Section 230(c)(1) of the CDA provides immunity from liability for providers and users of an "interactive computer service" who publish information provided by others: No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider. Source: . 4 While the actual number of prostitution ads cannot be precisely affirmed, a Craigslist blog post revealed that there are at least 700,000 prostitution ads posted on the site within a year. See manual-screening-matters/, accessed on June 17, 2015.

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general finally led to the closure of the Adults Section in September 2010. Despite the numerous anecdotal accounts that link Craigslist to prostitution acts, no studies known to date has formally examined and quantified the direct relationship between the site entry and prostitution trends. Past work has either examined the textual aspects of the posted ads or conducted interview studies with the workers (Castle and Lee 2008, Hemmingson 2008). Moreover, the market mechanisms that underlie the relationship between site entry and prostitution trends are not well-understood. To fill these gaps, the present research attempts to quantify the economic impact of Craigslist's entry on prostitution incidence, and shed light on the potential pathways in which the site could affect the market for sex workers.

Using a national panel data set, we examine the longitudinal relationship between Craigslist's entry and prostitution arrests in 1,791 U.S. counties from 1999 to 2008. To empirically identify the entry effects on prostitution arrests, we rely on Craigslist's expansion in the United States in a natural experiment setup. During its expansion, Craigslist was made available to the local community in a staggered fashion across the years. Thus in a given year, there is a subset of counties with Craigslist presence and another set of counties that do not. This unique entry setting allows for the comparison of `treated' counties with `control' counties, such that the effect of Craigslist on prostitution incidence can be derived. Exploiting the natural experiment framework, we run difference-in-difference panel regressions of prostitution counts on Craigslist's entry with county and year fixed effects, and include covariates to account for demographic characteristics, socioeconomic factors, and crime-related factors which may affect prostitution trends. Further robustness checks are performed on the main results. We rerun our analysis on a sub-sample of counties with active prostitution cases to derive a more comparable set of counties as controls, consider the results from alternative model specifications, use propensity score matching to

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identify a more comparable treatment and control counties, and perform falsification checks to ascertain the effect observed from the main specification was not spurious.

Furthermore, we examine various market mechanisms by which Craigslist impacts prostitution incidence. First, we examine Craigslist's impact on sex trade in relation to the prostitution market operated by commercialized vice. Specifically, our analyses seek to assess whether the entry of Craigslist creates a new market on top of that provided by commercialized vice organizations, or substitutes the existing market operated by commercialized vice organizations. Second, we investigate whether Craigslist's impact plays a stronger role in intensifying existing prostitution trends or create new markets in locations without prior prostitution histories. Third, we study the spillover effects of the prostitution market with respect to entry of Craigslist in a neighboring location on the focal locations without Craigslist. Finally, we employ additional data from news article labels to rule out the efficiency gains in law enforcement efforts in curbing prostitution against actual market increase in prostitution cases due to Craigslist.

Our empirical analysis reveals that the entry of Craigslist holds a positive relationship with prostitution trends, which equates to a 7.57 percentage increase in prostitution cases. We find that sign and significance of our main results is robust under various alternate model specifications. Falsification tests show that the relationship between site entry and prostitution cases did not arise spuriously, and a pre-entry trend leading to an increase in prostitution trends was not present. We also note that the post-entry effects are increasing for at least three years. While examining the underlying mechanisms, our analysis shows that the increase in prostitution from Craigslist's entry generates an additional market on top of that operated by commercialized vice organizations. Our analyses reveal that the market facilitated by Craigslist is largely made up of sex workers in the

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41-50 age group. In addition, Craigslist's entry has a stronger impact in counties with no prior cases of prostitution compared to counties with existing cases of prostitution. Further, we find that prostitution activities can spillover to counties without Craigslist presence, after the launch of Craigslist in a neighboring county. Finally, after removing county-years where reported prostitution stings enabled by Craigslist, we find the entry of Craigslist continues to hold a positive and significant impact on prostitution trends, that equates to a 5.86 percentage increase in prostitution incidence. This illustrates that over and above the involvement of law enforcement towards using Craigslist to curb prostitution, the incidence of prostitution has increased under a technology-enabled market expansion.

Our paper aims to make a few key contributions to the literature. First, our study contributes broadly to the emerging literature that researches the societal challenges associated with online intermediaries and Internet penetration (Chan and Ghose 2014, Chan et al. 2015, Cooper 2013). While the Internet has both positive and negative impacts towards the society, extant literature has focused largely on the former and overlooking its downsides. Responding to the call for research on the societal challenges and drawbacks of digital technologies (Fichman et al. 2015, Majchrzak et al. 2012), our investigation of Craigslist's impact on prostitution trends seeks to bring about awareness on the vulnerabilities introduced by IT, so that the proper technological design and policy changes can be brought into place. Second, by assessing the longitudinal impact of a major classified ad site entry on prostitution trends, our study not only empirically validates the link between Craigslist and prostitution, but also quantifies the entry effect at the societal level. In general, platform economics suggests that the network effect in platforms enhances behavior that causes desirable and positive outcomes (Rochet and Tirole, 2003). Our findings add to this literature by illustrating that platform dynamics can also foster an increase in criminal activities,

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which are associated with the substantial costs and punishments. Third, by shedding light on the underlying mechanisms that govern the growth in prostitution trends facilitated by Craigslist's entry, our study provides actionable, policy-relevant insights that contribute towards the effective implementation of strategies and interventions for curbing the proliferation of the underground sex trade. In particular, awareness of the inner workings of the platform-facilitated prostitution serves to expose `how' and `where' the sex trade would flourish, allowing for a better targeting of law enforcement resources.

The rest of the paper is organized as follows. We discuss the study context and related literature in Section 2. In Section 3, we describe the data used in the study. We then delineate the empirical methodology in Section 4. In Section 5, we report the main results of our analyses. To assess the underlying mechanisms, we explore various tests and report these results in Section 6. Finally in Section 7, we conclude with a discussion of study limitations, future work and study implications.

2. Study Context and Related Works

In this section, we provide the study context and draw upon various relevant literatures to delineate the relationship between classified advertisement sites and prostitution trends. 2.1. Craigslist Craigslist is currently the leading online classified service provider in the United States, with a presence in more than 700 local sites in 70 countries.5 According to recent research, Craigslist website was a portal for significantly large number of advertisements hosted by prostitutes and johns related to sex as a paid service (Farley et al. 2013). By 2005, Craigslist became a virtual

5 Information available at . 6

prostitution zones, in which it host 25,000 new prostitution-related ads every ten days in the United States alone (Farley 2006).

In protest of prostitution related posts, community and government took critical actions against Craigslist. Two victims of online sex trafficking sent an open letter to Craig Newmark, the founder of Craigslist, to shed light on the problems of prostitution. In that letter, the two teenage girls describe the horrors they suffered while they were being sold for sex through the "adult" services section of Craigslist.6 In 2009, Cooke county Sheriff Dart sued Craigslist and provided evidence that the site was being used to facilitate prostitution of child and adult victims and that it was a public nuisance (Dart vs. Craigslist, 2009). In response, Craigslist made token changes such as announcing that minors should not use its erotic services section, providing links to antitrafficking websites, and charging ten dollars per adult service posts (Sarno 2009).

Following these individual cases, seventeen state attorneys general sent a letter to Craig Newmark and Jim Buckmaster in August 2010, and requested the immediate removal of the "adult" services section of Craigslist.7 A month after the request, Craigslist voluntarily replaced its "adult" services section with a black text box that read "censored", and several days later the section was removed entirely (Doft and Robertson 2010, Lindenberger 2010). Following Craigslist's closure of the "adult" services section, other online platforms assumed the role of facilitating the transactions of the online sex industry. Similar platforms, like , and (Glorioso 2011), are used by sex workers and clients for soliciting paid sex services. After 2010, 's sexual content offerings increased, which

6 The victims identified themselves as AK and MC. The original letter is available at . 7 On August 24 2010, seventeen state Attorneys General sent an open letter to Craig Newmark, Founder, and Jim Buckmaster, CEO, of Craigslist, Inc. Source: .

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showcase the possibility of migration of sex workers to the site from Craigslist website (Feyerick & Steffen, 2012). Even after the closure of the adult service section, sex selling ads started to appear in other sections of Craigslist, like personals sections (Louie 2010), and in Craigslist sites outside of United States (e.g., Shenzhen, China; Lucknow, India; and Newcastle, Australia). Based on these observations, the selling of sexual services on classified ad sites are likely to persist past the closure of Craigslist's adult section.

Given that is still in operation, the findings learned from Craigslist can inform us on the impact of similar classified ads websites. To this end, our studies scope restricts itself to Craigslist as the website offers a clearer identification strategy, since it does not charge a fee for posting of ads pursuing paid sex. Further details of our empirical approach explaining the identification strategy is mentioned in Section 4.1, where we exploit the expansion of Craigslist into different counties over time as a natural experiment setting. Such a trend warrants the formal study of the economic impact that sites like Craigslist and others have on prostitution incidence, and requires a better understanding of the underlying mechanisms leading to this relationship.

2.2 Online Platforms and Prostitution

Craigslist is an online classified advertisement site and bears the characteristics of online platforms. Research in online platforms illustrate that online intermediaries facilitate communication across spatial and temporal boundaries (Bailey and Bakos 1997, Jin and Robey 1999), bring about reduced search costs (Bakos 1997, Il-Hann and Terwiesch 2003), and provide a broader base of product offerings (Brynjolfsson et al. 2003, Jin and Robey 1999). Related research in online matching platforms shows that matching facilitated by online intermediaries are not only feasible, but also more efficient, which leads to more matches within shorter periods of time (Hitsch et al. 2010). As a result, online intermediaries impact strategic choices of other related

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