moral hazard

From Wikipedia, the free encyclopedia

In economics, moral hazard occurs when an entity has an incentive to increase its exposure to risk because it does not bear the full costs of that risk. For example, when a corporation is insured, it may take on higher risk knowing that its insurance will pay the associated costs. A moral hazard may occur where the actions of the risk-taking party change to the detriment of the cost-bearing party after a financial transaction has taken place.

Moral hazard can occur under a type of information asymmetry where the risk-taking party to a transaction knows more about its intentions than the party paying the consequences of the risk and has a tendency or incentive to take on too much risk from the perspective of the party with less information. One example is a principal–agent problem, where one party, called an agent, acts on behalf of another party, called the principal. If the agent has more information about his or her actions or intentions than the principal then the agent may have an incentive to act too riskily (from the viewpoint of the principal) if the interests of the agent and the principal are not aligned.

History

According to research by Dembe and Boden, the term dates back to the 17th century and was widely used by English insurance companies by the late 19th century. Early usage of the term carried negative connotations, implying fraud or immoral behavior (usually on the part of an insured party). Dembe and Boden point out, however, that prominent mathematicians who studied decision-making in the 18th century used "moral" to mean "subjective", which may cloud the true ethical significance in the term. The concept of moral hazard was the subject of renewed study by economists in the 1960s, beginning with economist Ken Arrow, and did not imply immoral behavior or fraud. Economists use this term to describe inefficiencies that can occur when risks are displaced or cannot be fully evaluated, rather than a description of the ethics or morals of the involved parties.

Rowell and Connelly offer a detailed description of the genesis of the term moral hazard, by identifying salient changes in economic thought, which are identified within the medieval theological and probability literature. Their paper compares and contrasts the predominantly normative conception of moral hazard found within the insurance-industry literature with the largely positive interpretations found within the economic literature. Often what is described as "moral hazard[s]" in the insurance literature is upon closer reading, a description of the closely related concept, adverse selection.

Finance

In 1998, William J. McDonough, head of the New York Federal Reserve, helped the counter-parties of Long Term Capital Management avoid losses by taking over the firm. This move was criticized by former Fed Chair, Paul Volcker and others as increasing moral hazard. Tyler Cowen concludes that "creditors came to believe that their loans to unsound financial institutions would be made good by the Fed – as long as the collapse of those institutions would threaten the global credit system." Fed Chair, Alan Greenspan, while conceding the risk of moral hazard, defended the policy to orderly unwind Long Term Capital by saying the world economy is at stake.

Economist Paul Krugman described moral hazard as "any situation in which one person makes the decision about how much risk to take, while someone else bears the cost if things go badly." Financial bailouts of lending institutions by governments, central banks or other institutions can encourage risky lending in the future if those that take the risks come to believe that they will not have to carry the full burden of potential losses. Lending institutions need to take risks by making loans, and the riskiest loans usually have the potential for making the highest return.

Taxpayers, depositors, and other creditors often have to shoulder at least part of the burden of risky financial decisions made by lending institutions. Many have argued that certain types of mortgage securitization contribute to moral hazard. Mortgage securitization enables mortgage originators to pass on the risk that the mortgages they originate might default and not hold the mortgages on their balance sheets and assume the risk. In one kind of mortgage securitization, known as "agency securitizations," default risk is retained by the securitizing agency that buys the mortgages from originators. These agencies thus have an incentive to monitor originators and check loan quality. "Agency securitizations" refer to securitizations by either Ginnie Mae, a government agency, or by Fannie Mae and Freddie Mac, both for-profit government-sponsored enterprises. They are similar to the "covered bonds" that are commonly used in Western Europe in that the securitizing agency retains default risk. Under both models, investors take on only interest-rate risk, not default risk.

In another type of securitization, known as "private label" securitization, default risk is generally not retained by the securitizing entity. Instead, the securitizing entity passes on default risk to investors. The securitizing entity, therefore, has relatively little incentive to monitor originators and maintain loan quality. "Private label" securitization refers to securitizations structured by financial institutions such as investment banks, commercial banks, and non-bank mortgage lenders.

During the years leading up to the subprime mortgage crisis, private label securitizations grew as a share of overall mortgage securitization by purchasing and securitizing low-quality, high-risk mortgages. Agency Securitizations appear to have somewhat lowered their standards, but Agency mortgages remained considerably safer than mortgages in private-label securitizations and performed far better in terms of default rates.

Economist Mark Zandi of Moody's Analytics described moral hazard as a root cause of the subprime mortgage crisis. He wrote that "the risks inherent in mortgage lending became so widely dispersed that no one was forced to worry about the quality of any single loan. As shaky mortgages were combined, diluting any problems into a larger pool, the incentive for responsibility was undermined." He also wrote, "Finance companies weren't subject to the same regulatory oversight as banks. Taxpayers weren't on the hook if they went belly up [pre-crisis], only their shareholders and other creditors were. Finance companies thus had little to discourage them from growing as aggressively as possible, even if that meant lowering or winking at traditional lending standards."

Moral hazard can also occur with borrowers. Borrowers may not act prudently (in the view of the lender) when they invest or spend funds recklessly. For example, credit card companies often limit the amount borrowers can spend with their cards because without such limits, borrowers may spend borrowed funds recklessly, leading to default.

Securitization of mortgages in America started in 1983 at Salomon Brothers and where the risk of each mortgage passed to the next purchaser instead of remaining with the original mortgaging institution. These mortgages and other debt instruments were put into a large pool of debt, and then shares in the pool were sold to many creditors.

Thus, there is no one person responsible for verifying that any one particular loan is sound, that the assets securing that one particular loan are worth what they are supposed to be worth, that the borrower responsible for making payments on the loan can read and write the language in which the papers that he/she signed were written, or even that the paperwork exists and is in good order. It has been suggested that this may have caused the subprime mortgage crisis.

Brokers, who were not lending their own money, pushed risk onto the lenders. Lenders, who sold mortgages soon after underwriting them, pushed risk onto investors. Investment banks bought mortgages and chopped up mortgage-backed securities into slices, some riskier than others. Investors bought securities and hedged against the risk of default and prepayment, pushing those risks further along. In a purely capitalist scenario, the last one holding the risk (like a game of musical chairs) is the one who faces the potential losses. In the sub-prime crisis, however, national credit authorities (the Federal Reserve in the US) assumed the ultimate risk on behalf of the citizenry at large.

Others believe that financial bailouts of lending institutions do not encourage risky lending behavior since there is no guarantee to lending institutions that a bailout will occur. Decreased valuation of a corporation before any bailout would prevent risky, speculative business decisions by executives who fail to conduct proper due diligence in their business transactions. The risk and the burdens of loss became apparent to Lehman Brothers, which who did not benefit from a bailout, and other financial institutions and mortgage companies such as Citibank and Countrywide Financial Corporation, whose valuation plunged during the subprime mortgage crisis.

Incentives to moral hazard in accounting rules

A 2017 report by the Basel Committee on Banking Supervision, an international regulator for the banking sector, noted that the accounting rules (IFRS # 9 and 13 in particular) leave entities significant discretion in determining financial instrument fair value and identified this discretion as a potential source of moral hazard: “The evidence consistent with accounting discretion as contributing to moral hazard behavior indicates that (additional) prudential valuation requirements may be justified.”

Banking regulators have taken actions to limit discretion and reduce valuation risk, i.e. the risk to banks' balance sheets arising from financial instrument valuation uncertainties. A row of regulatory documents has been issued, providing detailed prudential requirements that have many points of contact with the accounting rules and have the indirect effect of curbing the incentives for moral hazard by limiting the discretion left to banks in valuating financial instruments.

Connection to financial crisis of 2007−08

Main article: Financial crisis of 2007–08

Many scholars and journalists have argued that moral hazard played a role in the 2008 financial crisis, since numerous actors in the financial market may have had an incentive to increase their exposure to risk. In general, there are three ways in which moral hazard may have manifested itself in the lead up to the financial crisis.

• Asset managers may have had an incentive to take on more risk when managing other people's money, particularly if they were paid as a percentage of the fund's profits. If they took on more risk, they could expect higher payoff for themselves and were somewhat shielded from losses because they were spending other people's money. Therefore, asset managers may have been in a situation of moral hazard, where they would take on more risk than appropriate for a given client because they didn't bear the cost of failure.
• Mortgage loan originators, such as Washington Mutual, may have had an incentive to understate the risk of loans they originated because the loans were often sold to mortgage pools (see mortgage-backed securities). Because loan originators were paid on a per-mortgage basis, they had an incentive to produce as many mortgages as possible, even if they were risky. Because these institutions didn't expect to hold on to the loans until maturity, they could pass on the risk to the buyer of the loans. Therefore, mortgage loan originators may have been in a situation of moral hazard, because they didn't bear the costs of the risky mortgages they were underwriting.
• Third, large banks may have believed they were "too big to fail." That is, because these banks were so ingrained in the US economy, the federal government would not have allowed them to fail in order to prevent a full-scale economic crash. This belief may have been shaped by the 1998 bailout of Long Term Capital Management. "Too big to fail" banks may have believed they were essentially invincible to failure, thus putting them in a position of moral hazard: they could take on big risks – thus increasing their expected payoff – thinking that the federal government would bail them out in the event of a major failure. Therefore, large banks may have been in a situation of moral hazard, because they didn't bear the costs of a catastrophic collapse.

Notably, the Financial Crisis Inquiry Commission (FCIC), tasked by Congress with investigating the causes of the financial crisis, cited moral hazard as a component of the crisis, arguing that many factors, including deregulation in the derivatives market in 2000, reduced federal oversight, and the potential for government bailout of "too big to fail" institutions all played a role in increasing moral hazard in the years leading up to the collapse.

Others have argued that moral hazard could not have played a role in the financial crisis for three main reasons. First, in the event of a catastrophic failure, a government bailout would only come after major losses for the company. So even if a bailout was expected it wouldn't prevent the firm from taking losses. Second, there is some evidence that big banks were not expecting the crisis and thus were not expecting government bailouts, though the FCIC tried hard to contest this idea. Third, some have argued that negative externalities from corporate governance were a more important cause, since some risky investments may have had positive expected payoff for the firm but negative expected payoff to society.

Insurance industry

Moral hazard has been studied by insurers and academics; such as in the work of Kenneth Arrow, Tom Baker, and John Nyman.

The name comes originally from the insurance industry. Insurance companies worried that protecting their clients from risks (like fire, or car accidents) might encourage those clients to behave in riskier ways (like smoking in bed or not wearing seatbelts). This problem may inefficiently discourage those companies from protecting their clients as much as the clients would like to be protected.

Economists argue that the inefficiency results from information asymmetry. If insurance companies could perfectly observe the actions of their clients, they could deny coverage to clients choosing risky actions (like smoking in bed or not wearing seat belts), allowing them to provide thorough protection against risk (fire or accidents) without encouraging risky behavior. However, since insurance companies cannot perfectly observe their clients' actions, they are discouraged from providing the amount of protection that would be provided in a world with perfect information.

Economists distinguish moral hazard from adverse selection, another problem that arises in the insurance industry, which is caused by hidden information, rather than hidden actions.

The same underlying problem of non-observable actions also affects other contexts besides the insurance industry. It also arises in banking and finance: if a financial institution knows it is protected by a lender of last resort, it may make riskier investments than it would in the absence of the protection.

In insurance markets, moral hazard occurs when the behavior of the insured party changes in a way that raises costs for the insurer since the insured party no longer bears the full costs of that behavior. Because individuals no longer bear the cost of medical services, they have an added incentive to ask for pricier and more elaborate medical service, which would otherwise not be necessary. In those instances, individuals have an incentive to over consume, simply because they no longer bear the full cost of medical services.

Two types of behavior can change. One type is the risky behavior itself, resulting in a before the event moral hazard. Insured parties then behave in a more risky manner, resulting in more negative consequences that the insurer must pay for. For example, after purchasing automobile insurance, some may tend to be less careful about locking the automobile or choose to drive more, thereby increasing the risk of theft or an accident for the insurer. After purchasing fire insurance, some may tend to be less careful about preventing fires (say, by smoking in bed or neglecting to replace the batteries in fire alarms). A further example has been identified in flood risk management in which it is proposed that the possession of insurance undermines efforts to encourage people to integrate flood protection and resilience measures in properties exposed to flooding.

A second type of behavior that may change is the reaction to the negative consequences of risk once they have occurred and insurance is provided to cover their costs. That may be called ex post (after the event) moral hazard. Insured parties then do not behave in a more risky manner that results in more negative consequences, but they ask an insurer to pay for more of the negative consequences from risk as insurance coverage increases. For example, without medical insurance, some may forgo medical treatment due to its costs and simply deal with substandard health. However, after medical insurance becomes available, some may ask an insurance provider to pay for the cost of medical treatment that would not have occurred otherwise.

Sometimes moral hazard is so severe that it makes insurance policies impossible. Coinsurance, co-payments, and deductibles reduce the risk of moral hazard by increasing the out-of-pocket spending of consumers, which decreases their incentive to consume. Thus, the insured have a financial incentive to avoid making a claim.

Numerical example

The blue line represents the downward sloping marginal benefit curve. The orange line represents the constant $10 marginal cost curve without insurance. The green star is the market equilibrium. When the individual is insured, the marginal cost curve shifts down to 0, leading to a new equilibrium at the yellow star.

Consider a potential case of moral hazard in the health care market caused by the purchase of health insurance. Assume health care has constant marginal cost of $10 per unit and the individual's demand is given by Q = 20 − P. Assuming a perfectly competitive market, at equilibrium, the price will be $10 per unit and the individual will consume 10 units of health care. Now, consider the same individual with health insurance. Assume this health insurance makes health care free for the individual. In this case, the individual will have a price of $0 for the health care and thus will consume 20 units. The price will still be $10, but the insurance company would be the one bearing the costs.

This example shows numerically how moral hazard could occur with health insurance. The individual consumes more health care than the equilibrium quantity because they don't bear the cost of the additional care.

Economic theory

In economic theory, moral hazard is a situation in which the behavior of one party may change to the detriment of another after the transaction has taken place. For example, a person with insurance against automobile theft may be less cautious about locking their car because the negative consequences of vehicle theft are now (partially) the responsibility of the insurance company. A party makes a decision about how much risk to take, while another party bears the costs if things go badly, and the party insulated from risk behaves differently from how it would if it were fully exposed to the risk.

According to contract theory, moral hazard results from a situation in which a hidden action occurs. Bengt Holmström said this:

It has long been recognized that a problem of moral hazard may arise when individuals engage in risk sharing under conditions such that their privately taken actions affect the probability distribution of the outcome.

Moral hazard can be divided into two types when it involves asymmetric information (or lack of verifiability) of the outcome of a random event. An ex ante moral hazard is a change in behavior prior to the outcome of the random event, whereas ex post involves behavior after the outcome. For example, in the case of a health insurance company insuring an individual during a specific time period, the final health of the individual can be thought of as the outcome. The individual taking greater risks during the period would be ex-ante moral hazard whereas lying about a fictitious health problem to defraud the insurance company would be ex post moral hazard. A second example is the case of a bank making a loan to an entrepreneur for a risky business venture. The entrepreneur becoming overly risky would be ex ante moral hazard, but willful default (wrongly claiming the venture failed when it was profitable) is ex post moral hazard.

According to Hart and Holmström (1987), moral hazard models can be subdivided in models with hidden action and models with hidden information. In the former case, after the contract has been signed the agent chooses an action (such as an effort level) that cannot be observed by the principal. In the latter case, after the contract has been signed there is a random draw by nature that determines the agent's type (such as his valuation for a good or his costs of effort). In the literature, two reasons have been discussed why moral hazard may imply that the first-best solution (the solution that would be attained under complete information) is not achieved.

Firstly, the agent may be risk-averse, so there is a trade-off between providing the agent with incentives and insuring the agent. Secondly, the agent may be risk-neutral but wealth-constrained and so the agent cannot make a payment to the principal and there is a trade-off between providing incentives and minimizing the agent's limited-liability rent. Among the early contributors to the contract-theoretic literature on moral hazard were Oliver Hart and Sanford J. Grossman. In the meantime, the moral hazard model has been extended to the cases of multiple periods and multiple tasks, both with risk-averse and risk-neutral agents.

There are also models that combine hidden action and hidden information. Since there is no data on unobservable variables, the contract-theoretic moral hazard model is difficult to test directly, but there have been some successful indirect tests with field data. Direct tests of moral hazard theory are feasible in laboratory settings, using the tools of experimental economics. In such a setup, Hoppe and Schmitz (2018) have corroborated central insights of moral hazard theory.

Moral economy

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/Moral_economy

The concept of moral economy refers to economic activities viewed through a moral, not just a material, lens. The definition of moral economy is constantly revisited depending on its usage in differing social, economic, ecological, and geographic situations and temporalities. The concept was developed in 1971 by the British Marxist social historian and political activist, E.P. Thompson (1924 – 1993), in his essay, "The Moral Economy of the English Crowd in the Eighteenth Century", to describe and analyze a specific class struggle in a specific era, from the perspective of the poorest citizens—the "crowd". While Thompson had used the term moral economy in his seminal 1963 book, The Making of the English Working Class, it was in the 1971 essay that he provided a thick description of the centuries-old paternalistic feudal moral economy of production and exchange, that was rapidly being replaced by the classical political economy. Thompson saw the "crowd" as subjects—not objects of history. He used the analytical tools of the emerging discipline of social history, writing a "history from below" to provide evidence of how the "crowd" of "tinners, colliers, weavers, hosiery workers, and labouring people" made the decision to riot. They grieved the loss of their livelihood, faced hunger and—in some cases starvation. Thompson traced the root causes to the combined effects of the enclosure system, profiteering during deprivation, soaring prices, and other practices that Thompson associated with free trade, the free market, and the laissez-faire system he identified with Adam Smith's 1774 book The Wealth of Nations. Thompson revealed how peasants' grievances were underpinned by a popular consensus on which moral values constitute a moral economy. This included social norms, and mutual obligations and responsibilities of the various members of a community. As older protective laws disappeared, and previously illegal activities became legal or normalized, peasants experienced actual deprivation, and in extreme cases, starvation. Thompson said that the riots were not just a response to the physical hunger—but the outrage against what they perceived to be the immorality of the new economic system that caused the deprivation.

Usage of the term moral economy, extends historically to the 18th century. In the 1830s, it was used as a criticism of capitalism, and the classical political economy. It is Thompson who is associated with re-inventing, and rigidly defining and analyzing the concept. In his 1991 review of his 1971 article and its numerous critics, Thompson said that his use of the concept was set within a specific historical context. In order for the concept to be useful, it requires a constantly renewed language.

While Thompson is assigned its paternity, it is through the work of the political scientist, James C. Scott in the 1970s and 1980s that the concept became more widely used. Scott re-appropriated the concept of moral economics in reference to the experience of 20th century peasants engaged in subsistence agriculture in southeast Asia. The term is unusual in that it was developed by an historian, made popular by a political scientist and used in disciplines and area studies, such as political science, economics, sociology, anthropology, cultural studies, and ecology.

In the 21st century, the term moral economy suffered from a confusing array of definitions, including those that refer to economic activities through a "moral and simplistic" lens.

Use of the term in the 19th century

According to E.D. Thompson, James Bronterre O'Brien used the term in his 1837 criticism of 19th century political economists. Bronterre wrote this anti-capitalist polemic: "True political economy is like a true domestic economy; it does not consist solely in slaving and saving; there is a moral economy as well as political...These quacks would make wreck of the affections, in exchange for incessant production and accumulation... It is indeed the moral economy that they always keep out of sight. When they talk about the tendency of large masses of capital, and the division of labour, to increase production and cheapen commodities, they do not tell us of the inferior human being which a single and fixed occupation must produce

Thompson's concept

The British Marxist historian E. P. Thompson, who self-described as an empiricist, spent almost a decade gathering evidence for his 1971 Past & Present journal article "The Moral Economy of the Crowd in Eighteenth Century". The article was based on a collaborative project he had undertaken in 1963 with Richard Charles Cobb, who was working on 18th and 19th century protests in France. There is a strong relation between Thompson's "historical writing and his political engagement". In the 1960s, he sided with the students in the student protests at his university, and in the 1980s, he was the most well-known antinuclear intellectual activist in Europe.

In his 2017 book, The Moral Economists, Tim Rogan included Thompson in his trio of the 20th century's "most influential critics of capitalism"—along with R. H. Tawney's (1880 – 1962) and Karl Polanyi—who were read by a broad base of readers, informed research, and had a major influence on public opinion. They were historians—not economists—who challenged utilitarianism in economics as outsiders to the field. They were "theorists of everything economists left out." Tawney, like Thompson, compared the way in which early societies had maintained social cohesion through their norms and mores, in contrast to the "rugged individualism promoted by utilitarianism".

Thompson had first used the term moral economy in his seminal 1963 publication, The Making of the English Working Class in reference to the 1795 food riots in Englan. Thompson's social history, which is associated with history from below,^: 113Like that of other British social historians—Raphael Samuel and Christopher Hill—had its antecedents in Georges Lefebvre and the French Annales school. Thompson saw the peasant, the crowds, the working class as subjects not objects of history. Previously, historians presented the peasants and working class "as one of the problems Government has had to handle".

In his 1964 book, The Crowd in History, George Rudé, "explored the pattern of food riots and market disturbances in terms of their geographical distribution, frequency, level of violence". In his 1971 essay, Thompson expanded on the theme of the 18th century riots in England by shifting focus to the mentalité of the 18th crowd—longing for the older disintegrating economic system—described by Thompson as a 'moral economy'—that both paternalistically protected them through crises and dirth, but also held authority over them, and an emerging system, that they sensed, threatened their livelihood and existence. Thompson investigated the mentalité of the crowd, to reveal the thinking underpinning the riots. Thompson investigated how in a particular situation rural England in the 18th century, a crowd of peasants made the decision to riot. Thompson acknowledged that "riots were triggered off by soaring prices, by malpractices among dealers, or by hunger. But these grievances operated within a popular consensus as to what were legitimate and what were illegitimate practices" in marketing, milling, and baking, for example. "This in its turn was grounded upon a consistent traditional view of social norms and obligations, of the proper economic functions of several parties within the community, which, taken together, can be said to constitute the moral economy of the poor. An outrage to these moral assumptions, quite as much as actual deprivation, was the usual occasion for direct action." According to Thompson these riots were generally peaceable acts that demonstrated a common political culture rooted in feudal rights to "set the price" of essential goods in the market. These peasants held that a traditional "fair price" was more important to the community than a "free" market price and they punished large farmers who sold their surpluses at higher prices outside the village while there were still those in need within the village.

He said that the riots had been "legitimized by the assumptions of an older moral economy, which taught the immorality of ...profiteering upon the necessities of the people". The riots were a "last desperate effort" on the part of the protestors to re-impose the disintegrating Tudor policies of provision, the "old paternalistic moral economy" that was faced with the emergence of the "economy of the free market," the classical political economy. Thompson pointed out the "contradictory components of paternalistic control and crowd rebellion."

In the essay, Thompson developed and re-invented the term 'moral economy' and the "practices with which it has been associated" by "rigidly" and definitively defining" it—based it on the years of empirical evidence that he had begun gathering in 1963—situating his research within an "interpretive framework", thereby setting a "scholarly standard".

Norbert Götz, whose area of research focus is conceptual history, examined E. P. Thompson's moral economy in relation to classical political economy. He described how Thompson "treated the concept as a neologism that had no prior history". In 1991, Thompson acknowledged that he had been assigned paternity of the term, but clarified that he did not coin it. He wrote that he thought that the usage of the term could be dated to at least the mid-18th century.Thompson cited Bronterre O'Brien's 1837 "directly anti-capitalist usage" of the term, which was similar to the way in which Thompson used it. Götz wrote that in pre-capitalist England, the customary order had roots in both the Edwardian and Tudor era and was based on ‘open’ marketplace exchange.

Thompson's "sufficiently attractive" concept of 'moral economy' became "famous" with scholars from other disciplines outside history, such as political science, sociology, and anthropology, adopting it.

Thompson presented a version of the article at an April 1966 conference at the State University of New York. He described moral economy as a "traditional consensus of crowd rights that were swept away by market forces." In this article, Thompson described the bread nexus that emerged in the 18th century, as comparable to the cash-nexus of the industrial revolution.

Thompson pit the pre-capitalist moral economy with its traditional and paternalistic values against the "values and ideas of an unfettered market"—the "modern "political economy" associated with liberalism and the ideology of the free market". According to Thompson, the "breakthrough of the new political economy of the free market was also the breakdown of the old moral economy of provision." Thompson emphasized the continuing force of pre-capitalist traditional "moral economy" even as capitalism was rapidly expanding. In the pre-capitalist society, the authorities followed a paternalist tradition of what Thompson called, a moral economy, by which the authorities provided support to the poor in times of dearth and supported fair prices as part of a moral obligation. By the late 18th century, exponents of laissez-faire who criticized the older, traditional system, were encouraged by Adam Smith's highly influential notion of a self-regulating market. The crowd, which included "tinners, colliers, weavers, hosiery workers, and labouring people", regularly rioted against grain merchants and traders who raised their prices in years of dearth in an attempt to reassert the concept of the just price.

Prior to the rise of classical economics in the eighteenth century, the economies in Europe and its North American colonies were governed by a variety of (formal and informal) regulations designed to prevent "greed" from overcoming "morality". In the older system prior to the end of the 18th century, economic transactions were based on mutual obligation. Horwitz said that when national commodities markets began to develop in England in the second half of the 18th century, "the price of grain was no longer local, but regional; this [presupposed for the first time] the general use of money and a wide marketability of goods." Horwitz wrote that there was a radical difference between 18th century laws in Britain and modern contract law the old theory of title of contract "outlived its usefulness". This happened around the same time as organized markets were emerging and the economic system was being transformed. Horwitz criticized late 18th century writers of contract law, such as John Joseph Powell, author of the 1790 "Essay upon the law of contracts and agreements", for denouncing the older systems for undermining the "rule of law". Horwitz said the older systems in the 18th century courts were better ways of writing contract laws, as they were more "equitable conceptions of substantive justice".

To Thompson, the emerging classical political economy was epitomized by Adam Smith's chapter, "Digression concerning the corn trade" in his 1776 The Wealth of Nations . He wrote that this chapter was the "most lucid expression" of the standpoint of the political economy upon market relations in subsistence foodstuffs. In this chapter Smith rejects the bounty imposed by the government on corn exports. "The unlimited, unrestrained freedom of the corn trade, as it is the only effectual preventative of the miseries of a famine, so it is the best palliative of the inconveniences of a dearth; for the inconveniences of a real scarcity cannot be remedied, they can only be palliated." The "profound" influence of his essay was felt in "British government circles" including William Pitt the Younger, Lord Grenville, and Edmund Burke. He cites examples of British administrators sent to India who resolutely resisted any and all government interventions in the free operation of the market in spite of the "vast exigencies of Indian famine" during the Great Bengal famine of 1770 Amartya Sen estimated that approximately 10 million people died in the famine, which he described as manmade. In England, in general poor laws and charity protected many from starvation in the 18th century. For example, in 1795, the government enacted the Speenhamland system to alleviate extreme poverty.

According to Thompson, there was a wide consensus of the community that those who engaged in riots were "informed by the belief that they were defending traditional rights or customs." Patrick Collinson said in his 2001 chapter in Puritanism and the Poor, that clergymen in the sixteenth and seventeenth century often preached against various economic practices that were not strictly illegal, but were deemed to be "uncharitable". He said that, when the clergy condemned selling food at high prices or raising rents, it is possible that this influenced the behavior of many people who regarded themselves as Christian and might have been concerned about their reputations.

The 1991 compilation of his essays, Customs in Common, included both the original 1971 essay "The Moral Economy" and a chapter devoted to his reflections on the original article. In his 2012 chapter "E. P. Thompson and Moral Economies", in A Companion to Moral Anthropology Marc Edelman said that Thompson's use of 'moral' conflates 'moral' as in 'mores' or customs with 'moral' as the principled stance—especially in terms of the "common good" as defined by "customary rights and utopian aspirations". In his 1991 reflection on his 1971 "Moral Economics", in which Thompson responded to his many critics, he wrote that "Maybe the trouble lies in the word 'moral'. "Moral is a signal which brings on a rush of polemical blood to the academic head. Nothing had made my critics angrier than the notion that a food rioter might have been more 'moral' than a disciple of Dr. Adam Smith." In his 1991 reflection, Thompson responded to the widespread use of the term to which he was associated, to clarify how he had intended it to be understood. His concept of moral economy was focused on a specific geographic, political, social, and temporal context. It included the combination of "beliefs, usages, and forms associated with the marketing of food in the time of dearth" in the 18th century in England. It included, what he called, a "particular moral charge to protest", the "outrage provoked by profiteering in life-threatening emergencies", the "deep emotions" when faced with dearth, and the claims made by the crowds to the authorities at the time.

Thompson responded to his critics such as Istvan Hont and Michael Ignatieff, who rejected Thompson's position on Adam Smith regarding government intervention in the time of a famine.

James C. Scott's moral economy

Cambodian rice farming

French anthropologist and sociologist, Didier Fassin, described how in the 1970s and 1980s the political scientist, James C. Scott, re-appropriated Thompson's concept of moral economics in anthropology in the United States, A considerable number of researchers investigating social mobilization in developing countries, within the framework of rural political economy, were informed and inspired by Scott's research and his 1976 publication The Moral Economy of the Peasant: Rebellion and Subsistence in Southeast Asia. He wrote as an historian, developing his ideas on "production and forms of resistance" in an "academic environment of Marxist anthropology". He undertook his research in the colonial archives in Paris and London. He focused on colonization and decolonization in the peasant world of Burma and Vietnam, which included two unsuccessful uprisings in the 1930s. Scott described how during the colonial era, the economic and political transformations systematically violated what the lower classes perceived as social equity, causing such "indignation and rage that prompted them to risk everything" and making of them the "shock troops of rebellion and revolution". Scott related what he calls the moral economy of the peasant to their ideas of what was meant by economic justice and exploitation, and what constituted the tolerable and the intolerable in the name of economic justice. The peasant's moral economy was based on the value system that underlies the "expression of emotions" which in "their extreme form" results in the "emergence of revolts." Scott's moral economy, which was written at a time when American imperialism was being questioned, is an "important scientific" contribution to American social science.

Scott acknowledges the key role played by Karl Polanyi's The Great Transformation in informing his own work. Polanyi's has been criticized for reifying society and romanticizing the premarket society.

Scott citing Polanyi, described how farmers, tenants, and laborers invoked "moral economies or market logic" when it would serve their interests against market forces that threatened them. Scott said that the struggles in specific localities and temporal spaces were unique. The kind of market regulation they struggled with was not based on a logical or abstract notion of market relations, but was informed by "historical origins and institutional structure of any particular economy."

In the introduction Scott described the moral economy of the "safety first" "subsistence ethic" as a consequence of "precapitalist peasant societies" existing "too close to the margin" and faced with the "fear of food shortages" in 19th century France, Russia, and Italy and Southeast Asia in the 20th centuryr Scott cites and respects the work of both Barrington Moore Jr., the author of his 1966 Social Origins of Dictatorship and Democracy: Lord and Peasant in the Making of the Modern World, and Eric R. Wolf author of his 1969 Peasant Wars of the Twentieth Century, but differentiates his own focus and approach from theirs.

Scott wrote, "To begin instead with the need for a reliable subsistence as the primordial goal of the peasant cultivator and then to examine his relationships to his neighbor, to elites, and to the state in terms of whether they aid or hinder him in meeting that need, is to recast many issues." Scott cited Richard Charles Cobb, the author of 1970 book, The Police and the People: French Popular Protest 1789-1820.

Since Thompson and Scott, the term moral economy used in social history, has been widely adopted in fields such as economics, sociology and anthropology related to the interplay between cultural mores and economic activity. It describes the various ways in which custom and social pressure coerce economic actors in a society to conform to traditional norms even at the expense of profit.

In a 2002 journal article on customary tenure by Bill Grigsby, an assistant professor of rural sociology, based on his 1994 field research in two villages in eastern Senegal, Grigsby cites both Karl Polanyi and Scott.

Moral economy: beyond Thompson and Scott

In the chapter, "The 'Moral Economy' of the English Crowd: Myth and Reality" John Stevenson, criticized Thompson and the other British scholars who, he said, had following the lead of the French Annales school-historians, shifting away from traditional historiography. Stevenson said that their historiography attempted to investigate how social and economic systems really worked by considering all levels of society and by attempting to reveal underpinning collective mentalité. In his 1975 book, Stevenson was critical of Thompson for his attempt to "decode" the actions and "reconstruct the underlying assumptions and attitudes" of 'plebeian culture' in the larger the context of "social and economic change". He rejected Thompson's concept of moral economy underpinned by what Thompson called "extraordinary deep-rooted pattern of behaviour and belief" which legitimised their protests against the "propertied and those in authority".

In his 1998 book Moral Economy, by the University of Colorado's professor emeritus of economics, John P. Powelson wrote, "In a moral economy, with today’s technology no one should be poor….The moral economy captures the benefits of technological invention through classic liberalism while using sidewise checks and balances to prevent environmental damage, ethnic and gender bias, and distorted distributions of wealth. . . . In the moral economy, governments facilitate but rarely mandate." Powelson relates the concept of a "moral economy" to the balance of economic power. His moral economy is one in which there is a balance between interventionism and libertarianism; between economic factors and ethical norms in the name of social justice. Powelson sees a moral economy and economic prosperity as mutually reinforcing.

The term moral economy continued to used in disciplines such as history, anthropology, sociology and political science in 2015.

Steven Shapin's 2009 The Scientific Life: A Moral History of a Late Modern Vocation is indebted to Thompson's re-invention of the term in 1971. Götz, along with political scientist Johanna Siméant-Germanos, who focuses on social movement studies, and Joakim Sandberg—whose specialty is normative ethics, undertook extensive literature reviews on the theme of "Moral Economy: New Perspectives", in which they traced the "varied history" of the term moral economy from its "formative influence" in Thompson's original 1971 article to its use and meaning in 2015.

In his 2020 book Humanitarianism in the Modern World Götz and his co-authors from a perspective of the moral economy, drew on philosophical, humanitarian, and medical ethics, to examine how donors and relief agencies endow aid choices, appeal for, allocate, and account for aid.

In his Journal of Global Ethics 2015 article Sandberg sought to enhance understanding of the concept of moral economy through the use of more "precise and stringent" descriptions of "moral attitudes and traditions" than those currently used by empirical researchers by using the lens of normative ethics.

In his publications, Geoffrey Hodgson called for economists to balance utilitarian tendencies with moral considerations. A 2000 Studies in Political Economy journal article, built on this to call for economists to revive and develop the concept of moral economy in "contemporary advanced economies." The author described moral economy as one that "embodies norms and sentiments regarding the responsibilities and rights of individuals and institutions with respect to others."

In The Efficient Society, Canadian philosopher Joseph Heath wrote that Canada in 2001, had achieved the proper balance between social needs and economic freedom, and as such comes close to being a moral economy.

A University College of Cork paper describes how "concept of the moral economy when employed as an analytical tool to comprehend the essentially conservative inclination of discommoded social interests that embarked on collective action in order to sustain traditional entitlements, to maintain extant economic arrangements, or to permit access to foodstuffs at moments of acute price inflation, has considerable value" in regards to uprisings in the 18th and 19th century in Ireland.

The Quaker Institute for the Future (QIF), established in 2003 in Pennsylvania, and the related Moral Economy Project, emerged from the legacy of the economist Kenneth Boulding, the author of 1966 article, "The economics of the coming spaceship earth". Boulding was among the first social scientists to call attention to the need for an integrated, holistic, ecological worldview as the key focus of progressive policy and action. The 2009 publication, Right Relationship: Building a Whole Earth Economy, which is part of that project and supported by the QIF, says that the well-being of the planet, upon which human life is entirely dependent, requires a whole earth economy, that they also call a moral economy. The authors described the development of a moral economy as one which includes a new ecologically and morally coherent "bottom line" for "resource use and for the governance of the common good. The authors address key questions regarding the purpose, function, appropriate size, fairness, and governance of a world economic system and propose new ideas to place our economy in correct relationship with the earth's ecosystem. They argue that such a moral economy is essential if we are to avoid systemic collapse as our "growth economy" outstrips the earth's limited ability to recycle our waste, and as the Earth's inventory of critical raw materials and minerals is used up, in the face of growing population and growing affluence within those populations.

Since at least 2008, while the use of the term moral economy has increased in the social sciences, the clarity of the terminology has not improved. There are many different different and "confusing" definitions assigned to the term, including those that refer to economic activities through a "moral and simplistic" lens, according to an article in the Anthropological Theory journal. Moral economic activity is rooted in mutual obligations between people engaged in transactions over time. The author builds on the work of both Thompson and Scot, and identifies a distinction between moral values simply set within the "context of economic activity" and moral values that arise from the economic activity itself. The author calls for clearer definition of moral economy that would have "substantive benefits of a better approach to economic activity and circulation and a more explicit and thoughtful attention to moral value."

In the 2011 book, The Moralization of the Markets, the authors write that the "moral economy is more resonant now than ever."

In the 21st century, Thompson's work on the "role of popular protest and the "moral economy of the crowd" continued to be relevant. He was described in 2020 list as one of the "most important social thinkers of our age", whose work informed critical theory, alongside Karl Marx, Walter Benjamin, Fernand Braudel—who was highly influential in the Annales school, Mikhail Bakhtin, Carlo Ginzburg, and Immanuel Wallerstein.

Ethical socialism

 From Wikipedia, the free encyclopedia

Ethical socialism is a political philosophy that appeals to socialism on ethical and moral grounds as opposed to consumeristic, economic, and egoistic grounds. It emphasizes the need for a morally conscious economy based upon the principles of altruism, cooperation, and social justice while opposing possessive individualism. In contrast to socialism inspired by historical materialism, Marxist theory, neoclassical economics, and rationalism which base their appeals for socialism on grounds of economic efficiency, historical inevitability, or rationality, ethical socialism focuses on the moral and ethical reasons for advocating socialism. It became the official philosophy of several socialist parties.

Ethical socialism has some significant overlap with Christian socialism, Fabianism, guild socialism, liberal socialism social-democratic reformism, and utopian socialism. Under the influence of politicians like Carlo Rosselli in Italy, social democrats began disassociating themselves from orthodox Marxism altogether as represented by Marxism–Leninism, embracing an ethical liberal socialism, Keynesianism, and appealing to morality rather than any consistent systematic, scientific or materialist worldview.

Social democracy made appeals to communitarian, corporatist, and sometimes nationalist sentiments while rejecting the economic and technological determinism generally characteristic of both economic liberalism and orthodox Marxism.

Overview

Ethical socialism can be traced back to the utopian socialists, especially Henri de Saint-Simon and Charles Fourier, but also anarchists such as the French socialist Pierre-Joseph Proudhon as well as Italian revolutionaries and socialists such as Giuseppe Garibaldi and Giuseppe Mazzini. Those utopian socialists, one of the first currents of modern socialist thought, presented visions and outlines for imaginary or futuristic ideal societies, characterized by the establishment of a moral economy, with positive ideals based on moral and ethical grounds being the main reason for moving society in such a direction. Before Marxists established a hegemony over definitions of socialism, the term socialism was a broad concept which referred to one or more of various theories aimed at solving the labour problem through radical changes in the capitalist economy. Descriptions of the problem, explanations of its causes and proposed solutions such as the abolition of private property or supporting cooperatives and public ownership varied among socialist philosophies.

Clement Attlee, prime minister of the United Kingdom (1945–1951)

The term ethical socialism initially originated as a pejorative by the Marxian economist Rosa Luxemburg against Marxist revisionist Eduard Bernstein and his socialist reformist supporters, who evoked neo-Kantian liberal ideals and ethical arguments in favour of socialism. Self-recognized ethical socialists soon arose in Britain such as the Christian socialist R. H. Tawney and its ideals were connected to Christian socialist, Fabian, and guild socialist ideals. Ethical socialism was an important ideology within the British Labour Party. Ethical socialism has been publicly supported by British prime ministers Ramsay MacDonald, Clement Attlee, and Tony Blair. While Blair described New Labour as a return to ethical socialism, several critics accused him of completely abandoning socialism in favour of capitalism.

Ethical socialism had a profound impact on the social democratic movement and reformism during the later half of the 20th century, particularly in Great Britain. Ethical socialism is distinct in its focus on criticism of the ethics of capitalism and not merely criticism of the economic, systemic, and material issues of capitalism. When the Social Democratic Party of Germany (SPD) renounced orthodox Marxism during the Godesberg Program in the 1950s, ethical socialism became the official philosophy within the SPD. The decision to abandon the traditional anti-capitalist policy angered many in the SPD who had supported it. Some such as Ian Adams also argue that this was an abandonment of the classical conception of socialism as involving the replacement of the capitalist economic system and make a distinction between classical socialism and liberal socialism.

Themes

R. H. Tawney, founder of ethical socialism

R. H. Tawney denounced self-seeking amoral and immoral behaviour that he claimed is supported by capitalism. Tawney opposed what he called the "acquisitive society" that causes private property to be used to transfer surplus profit to "functionless owners", i.e. capitalist rentiers. However, he did not denounce managers as a whole, believing that management and employees could join together in a political alliance for reform. Tawney supported the pooling of surplus profit through means of progressive taxation to redistribute these funds to provide social welfare (including public health care, public education, and public housing) and the nationalization of strategic industries and services. He supported worker participation in the business of management in the economy as well as consumer, employee, employer and state cooperation in regulating the economy.

Although Tawney supported a substantial role for public enterprise in the economy, he stated that where private enterprise provided a service that was commensurate with its rewards that was functioning private property, then a business could be usefully and legitimately be left in private hands. Thomas Hill Green supported the right of equal opportunity for all individuals to be able freely appropriate property, but claimed that acquisition of wealth did not imply that an individual could do whatever they wanted to once that wealth was in their possession. Green opposed "property rights of the few" that were preventing the ownership of property by the many.

Ethical socialism was advocated and promoted by former British prime minister Tony Blair, who has been influenced by John Macmurray, himself influenced by Green. Blair has defined ethical socialism with similar notions promoted by earlier ethical socialists such as emphasis on the common good, rights, and responsibilities, and support of an organic society in which individuals flourish through cooperation. According to Blair, the Labour Party ran into problems in the 1960s and 1970s when it abandoned ethical socialism and believes that the party's recovery required a return to the ethical socialist values last promoted by the Attlee government.However, Blair's critics (both inside and outside Labour) have accused him of completely abandoning socialism in favour of capitalism.

Commercial sexual exploitation of children

From Wikipedia, the free encyclopedia

Commercial sexual exploitation of children (CSEC) is a commercial transaction that involves the sexual exploitation of a child, or person under the age of consent. CSEC involves a range of abuses, including but not limited to: the prostitution of children (e.g. survival sex, street prostitution, child sex tourism, gang-based prostitution, intra-familial pimping), child pornography (including live streaming sexual abuse stripping, erotic massage, phone sex lines, internet-based exploitation, and early forced marriage.

According to the National Center for Missing and Exploited Children (NCMEC), roughly one out of every five girls and one out of every ten boys will be sexually exploited or abused before they become of age.

Terminology

The Declaration and Agenda for Action, adopted during the First World Congress against Commercial Sexual Exploitation of Children, held in Stockholm, Sweden, in 1996, formally defines CSEC as:

a fundamental violation of children's rights. It comprises sexual abuse by the adult and remuneration in cash or kind to the child or a third person or persons. The child is treated as a sexual object and as a commercial object. The commercial sexual exploitation of children constitutes a form of coercion and violence against children, and amounts to forced labour and a contemporary form of slavery.

CSEC is often associated with child trafficking, which is defined as "the recruitment, transportation, transfer, harbouring or receipt of a child for the purpose of exploitation," and a child as any person under the age of 18. However, not all trafficked children are trafficked for the purposes of CSEC. Furthermore, the sexual abuse of child trafficking victims at work may not necessarily constitute CSEC. Likewise, CSEC is also part of, but distinct from other forms of child abuse and child sexual abuse, including child rape and domestic violence.

Types

Prostitution

Child prostitution is the "use of a child in sexual activities for remuneration." Prostitution is known as one of the youngest professions. Nearly 80% of adult prostitutes entered the industry between 11 and 14. Prostituted children face risks of damage to their physical and mental health, early pregnancy, and sexually transmitted diseases, particularly HIV. They are inadequately protected by the law and may be treated as criminals.

Child sex tourism

Child sex tourism refers to tourism by predators for the purpose of engaging in child prostitution. Sex tourism and sex trafficking generate revenue for countries. In some countries, with economies that rely on the exploitation of women and children, the government encourages child sex tourism, resulting in low fines for engaging in the sex trade. Many travel agencies offer guides on exotic entertainment, further encouraging men to travel for sexual purposes.

Pornography

Child pornography is the "representation, by whatever means, of a child engaged in real or simulated explicit sexual activities or any representation of the sexual parts of a child for primarily sexual purposes". These representations include photographs, books, audiotapes, and videos that depict children performing sexual acts with other children, adults, and objects. The children are subjected to exploitation, rape, pedophilia, and in extreme cases, murder.

Pornography is often used as a gateway into the sex trade industry. Many pimps force children into pornography as a way of conditioning them to believe that what they are doing is acceptable. Pimps may then use the pornography to blackmail the child and extort money from clients.

Fig.1 Child Pornography Points of Production

	International	National	Regional	Local
Production format	State-of-art technology in audiovisual equipment, development, and mass reproduction process.	Essentially the same as international.	Private developing studios and labs; lower quality material.	Lowest quality of all the markets; relies on retail level technology (instant cameras. Photostats). Direct purchase or exchange, mail.
Distribution methods	Mail, courier, direct sale.	Adult bookstores, mail (commercial and Postal Service), direct sale.	Mail (commercial, U.S.), direct purchase or exchange, adult bookstores.	Direct purchase or exchange, mail.
Producers	Syndicated sex rings, entrepreneurs, and freelance photographers.	Organized crime and freelance pornographers.	Primarily freelance pornographers, with some work hired out on contractual basis by local pimps or pedophiles.	Community or neighborhood pedophiles, sex rings, and pimps.
Evasion techniques	Mobile production and development sites, false identities, multiple disguised mailings of merchandise.	Use of middleman to arrange routine purchases, parental release form, and mobile production and developmental sites.	Transient identities and locations of pornographers, rapid turnover in children used as models, and parental release forms.	Victims coerced or blackmailed into silence; offender's mobility and good reputation often insulate from any suspicion.
Status	Still available, with emphasis on use of Third World youths as models; periodic inroads into traffic by foreign police and U.S. federal law enforcement agencies; reactive nature of police investigations precludes permanent abolition of production and distribution.	Extremely resilient, despite harsh federal laws occasional disruption of the flow of merchandise. Resold in neighboring countries and exported to Asia, Europe, and Africa.	Extremely difficult to intercept on proactive basis. Pimps and pornographers use juvenile hustlers and molested children as subjects. May later emerge in foreign publications. Parental consent binds guilty parties to secrecy; increasing emphasis on suggestive materials.	Pornography made at the local level is the mainstay of the pedophilic subculture; typically discovered during police search or accidentally via postal investigations.

Live streaming sexual abuse

Child victims of live streaming sexual abuse are forced to perform sex acts in real time in front of a webcam while watching the paying customers on-screen and following their orders. This occurs in locations commonly referred to as 'cybersex dens' that can be homes, hotels, offices, internet cafes, and other businesses. Traffickers advertise children on the internet to obtain purchasers, and overseas predators often seek out and pay for these illicit services.

Causes

The supply and demand for children in the sex trade industry is greatly influenced by the structure of a country. Kevin Bales says the increase of children sold into prostitution reflects the industrial transformation the country has experienced in the last fifty years. Young girls in Thailand are commonly from northern areas. Because of the harshness of the land and a family's dependency on a good harvest many families see their daughters as commodities.

On the macro-level of causes for child sexual exploitation is the globalization of the consumer market and the influx of new goods and services that encourage new forms of consumerism. The amount of money offered to parents for their children is often too good to refuse because they are living at or below the poverty level. The children are turned over to the buyer without any knowledge of what they were sold into.

Other macro-level influences include the expansion of construction sites and military bases in developing countries. These installations attract those who wish to sexually exploit children for large sums of money. The men who participate in the sexual exploitation of children at these installations are most often from developed countries and have no regard for the children. "It has been alleged that military personnel figure at a disproportionately high rate in the pedophile exchange lists confiscated by some police departments."

Families who sell their daughters to brothels tend to repeat the pattern with their younger daughters. The younger daughters, however, are more willing to go. This is because their older sisters tell them stories of their extravagant times in the city. The girls admire their sister's western clothes and money. The younger girls then enter into prostitution with little notion of what they are getting themselves into.

Dangers and consequences

Whether the children be in pornography, brothels, or trafficked they are all at risk for sexually transmitted infections, physical violence, and psychological deterioration. Research has shown that "fifty to ninety percent of children in brothels in Southeast Asia are infected with HIV. In many cases when children are brought into the sex trade industry they are beaten and raped until they are so broken they no longer try to escape. Physical hazards can also include infertility, cervical cancer, assault, and sometimes murder. Pregnancy is also a physical risk factor for many children. Much like if they are found to have HIV or AIDS the girls are thrown out of the brothels with nowhere to go. Many of the children "break the conscious link between mind and body" in order to function in these situations (Bales 221). By doing so, many children begin to think they are nothing more than "whores" and some develop suicidal thoughts. Other psychological risk factors include sleep and eating disorders, gender-disturbed sexual identity, hysteria, and even homicidal rage.

Outside physical and psychological dangers lies fear of the law. Many girls and women are illegally trafficked across borders. If they manage to escape from the brothel or pimp, the women and children quickly come to the attention of the authorities. Because they do not have proper documentation they are detained by the authorities. If they are held in local jails, the women and children often suffer further abuse and exploitation by the police.

Prevalence

See also: Child prostitution § Prevalence

While it is impossible to know the true extent of the problem, given its illegal nature, International Labour Organization (ILO) global child labour figures for the year 2003 estimate that there are as many as 1.8 million children exploited in prostitution or pornography worldwide.

The Rapid Assessment survey, developed by the ILO's International Programme for the Elimination of Child Labour (IPEC) and UNICEF, relies on interviews and other, mainly qualitative, techniques, to provide a picture of a specific activity in a limited geographic area. It is a highly useful tool for collecting information on the worst forms of child labour, like CSEC, that is difficult to capture with standard quantitative surveys.

General knowledge offered to a child can decrease the likelihood of children being exploited into prostitution or pornography. A national campaign in Thailand provided "9 years of basic education, ... awareness-raising activities to change attitudes about child prostitution, and a surveillance system to prevent children from being coerced into prostitution."

The United Nations Children's Fund (UNICEF) and the United Nations Population Fund (UNFPA) estimate that 2 million children are exploited in prostitution or pornography every year.

International agreements

In 1989, the UN General Assembly adopted the Convention on the Rights of the Child (UNCRC), the first international agreement to recognize the human rights of children, with freedom from sexual exploitation included as a basic right. Notably, Article 34 commits countries to "prohibiting inducement or coercion of children into unlawful sex acts, prostitution, or pornography." Currently, all United Nations member states except for the United States are parties to the UNCRC.

In 1996, the First World Congress Against the Commercial Exploitation of Children adopted the Declaration and Agenda for Action, which formally reframed child prostitution as CSEC, and committed participants to develop and enforce national plans of action against CSEC; a follow-up Second World Congress was held in 2001.Following these conferences, the UN took additional steps to address CSEC. Between 2002 and 2003, the UN adopted the Optional Protocol on the Sale of Children, Child Prostitution, and Child Pornography, which has more detailed commitments on the protection of children, including reporting and monitoring. The vast majority of countries have also ratified this protocol. Also adopted was the Protocol to Prevent, Suppress, and Punish Trafficking in Persons Especially Women and Children, which was the first international agreement to formally define human trafficking. Additionally, specialized organizations under the UN (UNICRI, UNODC, ILO, WTO) have established efforts focused on CSEC, including research, data collection, reporting, training, and anti-trafficking strategy and implementation.

The same committee that put the Optional Protocol into action has put more effort into acquiring more accurate data on child sexual exploitation. The 2012 Global Report on Trafficking in Persons shows that with the Protocol in place countries without a child sexual exploitation offense have nearly halved. At the regional level, criminal convictions of trafficking offenses have increased.

In 2010, the UN instated a Global Plan of Action against Trafficking in Persons has been instated. This plan involves strengthening the abilities of law enforcement to identify victims of trafficking, enhance investigations of alleged cases, and prosecute and punish the many corrupt officials who partake in sex trafficking and tourism.

Prevention

Theater about sexual violence against children in Coronel Fabriciano, Brazil

Education

One of the many ways to aid in CSEC prevention is through education. The previously mentioned Protocol requires members to provide preventative measures against child sexual exploitation; among these preventative measures is educating the public, especially families, on the dangers of sex tourism and trafficking. World Vision is one of the leaders in creating these educational opportunities for young girls. Other efforts involve educating police, medical, and school personnel on how to identify CSEC victims and respond in a situation involving CSEC, and educating potential CSEC victims about the tactics recruiters often use to reach at-risk individuals.