Association for Public Policy Analysis & Management

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, Section 230 of Communications Decency Act shields websites from liability for unlawful postings by third parties. Consequently, websites such as Craigslist have become a haven for prostitution-related ads. With prostitution-related sites still in operation, 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 set for 1,796 U.S. counties from 1999 to 2008, our analyses suggest that entry of Craigslist to a county leads to a 17.58 percent increase in prostitution cases. In addition, the analyses reveal that a majority of prostitution activity on Craigslist is induced by organized vice groups, in addition to voluntary participation by a smaller set of independent providers. Further, we find site entry has a stronger impact in counties with a past history of prostitution and produces spillover effects in neighboring locations that are not directly served by Craigslist. Sex workers providing niche sexual services are found to increase with site entry. In addition, we learn that site entry leads to an increase in transactions of existing workers and also attracts new workers to the market. We find that the increase in prostitution arrests does not catch up with the growth in prostitution trends brought in by Craigslist. Finally, we find complementarity effects between erotic and casual sex ads in leading to the increase of prostitution. Our results contribute broadly to the emerging literature on the societal challenges associated with online intermediaries and Internet penetration, and serve to provide guidelines for policy makers in regulating the sex industry in the Internet era.