Friday, January 23, 2009

Price Discovery

This story seems to be making the rounds of the blogosphere:

"Is a woman's virginity worth $3.8 million? That's how much a
22-year-old from San Diego, California, said she has been offered
through an auction she announced in September."

My office mate and I discussed this transaction. Here is the cynical
economic analysis:

1) This is probably not a stable market price. If the supply
increased, the price would be driven down.
2) News of this is likely to provoke a supply response, encouraging
more suppliers to enter the market.

However, the price will not fall too far or too quickly. Consider:

3) The fact that this price was the result of a competitive bid
implies that there was at least one other person willing to pay that
4) There is a possibility that this news will also increase demand, as
the publicity brings in more bidders.

It would be an interesting research project to observe how the price
changes over time, assuming the data is made public.

From an economist's point of view, any cash transaction like this is
useful knowledge because it tells us the value that people place on
things. Consider how this gives parents a new tool to use when
talking to their daughter. "Honey, you are worth millions of dollars.
Are you going to give that away for free?" Someone who doesn't
listen to moral arguments could easily be persuaded by the dollar
value into saying no.

PS: The article says that she was raised in a 'conservative,
non-Christian religious household' and quotes her as saying 'this
doesn't go against my religion' I wonder what religion that is. I
would guess Hinduism.

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