The Economics of Religion: a Survey of Recent Work

ARTICLE

The Economics of Religion: A Survey of Recent Work

IN1RODUCTION he past three decades have witnessed dramatic growth in the domain of ~economics. Economists now study such diverse subjects as education, fertility, discrimination, voting, marriage, health, crime, and addiction. Even so, few economists have applied their analytic tools to the study of religion. Secular economists tend to ignore religion altogether or else view it as an exogenous characteristic like race or sex. Christian economists too, despite much work on economics and religion, have said little about the economics of religion. They have critiqued economic theory and economic policies from the standpoint of moral and religious values and have analyzed religiously motivated pronounce ments such as the Catholic Bishops' Pastoral from the standpoint of economic logic. But rarely have they used economic theory to account for religious practice or religious institutions. It is not for lack of precedent that contemporary economists shun the econom AUTHORS ics of religion. Adam Smith devoted some twenty-five pages of The Wealth of Nations to the analysis of religious institutions, arguing that established religions LaurenceR. face the same incentive problems as other state monopolies (Smith [1776] 1965, p. Iannaccone is a member 740). Although Smith's analysis laid the foundation for a theory of religious ofthe Department of markets, two centwies passed without any serious attempts to build upon it. Economics at Santa Our personal experiences suggest that secular and religious economists often. Clara University (CA). avoid the economics of religion for opposite reasons. Secular economists, to Brooks B. Hull is a gether with the majority of academics and intellectuals, tend to see religion as an member of the Department of Social uninteresting vestige of pre-scientific times. Despite the 1980's resurgence of Sciences at the evangelical fundamentalism, most secular economists view religious belief, University ofMichi , behavior, and institutions as increasingly unimportant aspects of modem life. gan-Dearborn. They therefore greet work on the economics of religion with a mixture of amuse ! ment, apathy, and disdain. For religious economists, the situation is almost J { NOTES I exactly reversed. Religion is so important, its truths so profound, that it inevita i ~, bly transcends social-scientific inquiry. There is therefore a natural tendency to The authors thank question the validity of an "economics of religion." The very idea strikes many as Robert EkeluM, Dtn1id naive, futile, or even offensive. Levy, and Richard Collegiate skepticism notwithstanding, a handful of economists recently have Roehl for comments. turned their attention to the economics of religion. Their work employs the same This paper was written methodology that characterizes other attempts to expand the domain of econom while lAurence ics, and their substantive concerns tend to mirror those in the sociology of religion Iannaccone WIIS Il (i.e., understanding the determinants of religious behavior and the characteristics NatiOPUlI Fellow Ilt the Hoover Institution. of religious institutions). As is the case with sociologists of religion, these econo- 1 BUUETIN I ARTICLE

mists are not uniformly religious or irreligious, but rather bring to the subject a ... our goal is variety of perspectives, convictions, and motivations. not to reduce This essay is designed to familiarize readers with the economics of religion, religion to a make its literature more accessible, and encourage further contributions to that purelyeco literature. We begin by outlining work on the religious behavior of individuals nomic phenom and households, proceed to analyses of religious groups and institutions, and ena, but rather conclude with work on religious markets. Along the way, we attempt to maintain a relatively neutral perspective. Since most readers will have read few if any of merely to illu the papers we describe, a methodological critique or defense seems premature. minatesome Moreover, given our own enthusiasm for the subject, any critique would be half aspects ofit. hearted, and any defense, self-serving. Suffice it to say that our goal is not to f reduce religion to a purely economic phenomena, but rather merely to illuminate some aspects of it. We would place our efforts on the same level as other social scientific studies of religion and hope that people of faith approach them in the same way that they approach research in the sociology, psychology, and anthro pology of religion.

INDNIDUALS AND HOUSEHOLDS Ehrenberg's predictions is mixed. Their Contemporary research on the eco own regression analysis of survey data nomics of religion begins with Azzi and tends to confirm their predictions, as does Ehrenberg's (1975) analysis of household additional analysis by Ehrenberg (1977). religious activity. Azzi and Ehrenberg But surveys analyzed by Long and Settle develop a model.of religious participation (1977) and Ulbrich and Wallace (1983, that is for the most part a straightforward 1984) find no evidence that "afterlife application of the "new home economics" consumption motives" causes religious pioneered by Gary Becker (1976). Indi participation to increase with age, nor that viduals are assumed to allocate time and women's higher rates of religiosity can be goods to maximize the utility derived from explained in terms of lower alternative a set of household commodities, one of wages (c.f.DeVaus, 1984). Sullivan's which happens to be religion. (1985) simultaneous equations test of the In Azzi and Ehrenberg's framework, relationship between church contributions the primary motivation for religious and attendance finds weak support for participating is assumed to be "afterlife Azzi and Ehrenberg's model. consumption." This amounts to a strong Researchers also have questioned Azzi restriction.on the way religiouscommodi and Ehrenberg's theoretical assumptions, ties enter household utility functions. most notably the assumptions that afterlife Together with the assumption that the consumption is the major motivator of marginal product of inputs devoted to religious activity and that religious com religion is independent of age, the restric modities are simple functions of goods and tion implies that religious participation time. The standard goods-time framework increases with age. Efficiency conditions abstracts from the collective side of also require that households with lower religious activity, suggests statistical values of time produce religious commodi models little different from those em tiesin a more time-intensive manner, and ployed by sociologists, and has little to say that within a given household, relatively about the strongest predictors of indi more time be supplied by members with vidual participation: .denomination, lower altemativewages (typically, wives). personal belief, and family background. The empirical support for Azzi and Iannaccone (1984, 1980)attempts to

• FALL 1991 overcome the limitations of the goods-time researchers attempt to explain the devel framework by extending Azzi and opment of religious doctrine, the organiza Simple models Ehrenberg's model to incorporate the tional structure of religious institutions, ofisolated a~umwationofHreli~oush~ncapi and the evolution of reli~ous practices. utility maxi tal." The extended model explains age For example, Ireland (1989) examines the trends in terms of experience effects and role of entrepreneurship in the formation mizers, con habit fonnation rather than afterlife of new religions, and Dolin, Slesnick, and strained only concerns. The model.also generates Byrd (1989) explain the organizational by personal predictions concerning denominational structure of contemporary denominations income and mobility, religious intermarriage, and in terms of a franchising model. Finke and conversion ages. Other extensions of the Stark (1989) argue that the explosive commodity Azzi and Ehrenberg model are presented growth of the Methodist and Baptist prices, have by Redman (1980), who models the denominations in nineteenth century given way to production of Hpersonal salvation" as America was due to their clergy's superior models that more time-intensive than Hsocial welfare," marketing and incentives relative to those and by Neuman (1982, 1986, c.f. Neuman of the Congregationalists, Presbyterians, emphasize the and Grossbard-Shechtman 1984), whose and Episcopalians. role ofspecial analysis of time devoted to religious Ekelund, Hebert, and Tollison (1989) ized firms or practice takes account of (myopic) habit use the model of a monopoly firm to ex clubs in the formation. Greely and Durkin (1991) have plain the medieval Catholic church's usury developed a model of religious choice docbine. Here rent seeking is the primary production of under uncertainty that views Hfaith" as a motivation of the church hierarchy. The religious com type of human capital. central church's monopoly position modities. allowed it to extract rents from down RELIGIOUS GROUPS AND INSTITU stream producers (the clergy) and from TIONS input suppliers (banks) by controlling the Most recent research shifts its focus borrowing and lending interest rates. from individuals and households to If churches act as producers, then it is groups and institutions. Simple models of natural to ask about the commodities they isolated utility maximizers, constrained produce. A key insight from this research only by personal income and commodity is that important church products are pub prices, have given way to models that lic goods. Indeed, this research argues that emphasize the role of specialized firms or the collective nature of religious produc clubs in the production of religious tion explains many differences in church commodities. These models may over structure, doctrine, and organization. come shortcomings in the earlier work Bold and Hull (1989, 1991; c.f. Hull which, though designed to predict church and Bold 1989) stress property rights attendance, never really addressed the enforcement and appropriate social existence of churches. behavior as critical, albeit unintended, The papers that fall into this category collective goods in the church's product are diverse. However, most share the mix. They test this hypothesis with cross working assumption that religious activity sectional data comparing rates of religious can be viewed as rising out of the interac adherence and criminal activity and data tion of (clergy) producers andOay) con on religious characteristics across cultures. sumers of religious commodities. Hence, Their model explains aspects of churches most draw heavily on the theory of the as diverse as church building architecture firm. A few papers emphasize religion as and priestly clothing. Davies (1986) also a collective activity and so take club theory emphasizes church. provision of collective as their starting point. goods like social insurance and appropri By modeling churches as firms, ate individual behavior using the Mormon BULLETIN ;\R']-I (~ I_f~

church as a case study. Iannaccone (forthcoming) develops a By modeling Anderson (1989; 1989b) views the different kind of club model, one that churches as medieval Catholic church as a powerful, assumes positive returns to llparticipatory firms, research profit maximizing monopoly that crowding/'In this model, which assumes benefitted from well-defined property that the increased paticipation of one ers attempt to rights. Anderson argues that property member raises the utility of other mem explain the rights issues shaped the Church's applica bers, apparently gratuitous sacrifices can development of tion and modification of doctrines con function to mitigate free rider problems. religious doc cerning penance in this life and heaven, Perfectly rational individuals may thus hell, and purgatory in the next.· Arguing find it in their interest to join so-called trine, the orga in a similar vein, Hull (1989) shows how I'sects" and llcults"· that demand stigma, nizational changes in Catholic church teachings self-sacrifice, and bizarre behavioral structure of about hell and·purgatory were innovative standards._Atlhe-same-time, other people religious insti ~ methods of enforcing property rights in will find it optimal to fonn less demanding the High Middle Ages, a time when nation groups, such as mainstream churches. The tutions, and the states had not yet assumed responsibility distinction between demanding "sects" evolution of for property rights enforcement in the and mainstream "churches" is also ana religious prac newly emerging cities. lyzed inIannaccone (1988)~and Schaefer tices. Although religious institutions mani (1988). fest many firm-like characteristics, the standard distinction between producer RELIGIOUS MARKETS and consumer is only partially applicable The introduction to this essay noted to churches. Congregations, like families, that Adam Smith devoted some twenty combine the functions of production and five pages of The Wealth of Nations to the consumption. Aside from a few full-time analysis of religious institutions. Ap religious professionals and a handful of proaching the subject from the market benchwarmers, most church members act level, Smith argued that established as both producers and consumers of religions face the same incentive problems religious commodities. Moreover, many that plague other state monopolies: religious activities, especially acts of public The teachers of [religion]... , in the worship and charity, generate public same manner as other teachers, may benefit. These facts have motivated some either depend altogether for their economists to model churches as economic subsistence upon the voluntary clubs rather than neoclassical firms. contributions of their hearers; or they McChesney (1987) models churches as may derive it from some other fund producers of congestable, impure public to which·the law of their country may goods. Hence, his analysis focuses on entitle them ... Their exertion, their issues of optimal number of clubs in a zeal and industry, are likely to be society. Halteman (1988) draws on public much greater in the former situation choice theory to address a similar set of than the latter. In this respect the issues. Both of these papers predict an teachers of new religions have always inverse relationship between church size had a considerable advantage in and contribution rates. Upford (1990) uses attacking those ancient and estalr a similar approach but reports empirical lished systems of which the clergy, results that contradict McChesney's and reposing themselves upon their Halteman's implications. Other econo benefices, had neglected to keep up mists interested in religious clubs and free the fervor of the faith and devotion in rider problems include Sullivan (1985), the greatbody of the people ... Pautler (1977), and especially, Wallis (1990, (Smith [1776] 1965, pp. 740-741). 1991). FALL 1991 Smith's analysis lays the foundation gave way to a free religious market Hull for a theory of religious markets, a theory and Moran (1989) draw similar conclu ••• the eco in which self-interest motivates clergy just sions based on their analysis of a colonial nomic approach as it does secular producers; market forces church membership time series. As many to religious constrain churches just as they do secular of these authors emphasize, the economic firms; and the benefits of competition, the approach to religious markets yields markets yields burdens of monopoly, and the hazards of predictions that contradict the long predictions that government regulation are as real as in standing sociological assumption that contradict the any other sector of the economy. Ander religious pluralism undermines religiosity longstanding son (1988) reviews Smith's theory in some and facilitates secularization. detail. Posner (1987) and McConnell and sociological Posner (1989) apply Smith's insights to an CONCLUSION assumption analysis of the first amendment's impact The nexus of religion and ec0!l0mics is that religious on religion in America. Iannaccone (1991) complex and multi-faceted. The econom pluralism uses the contemporary theory of regula ics of religion as defined and reviewed in tion to extend Smith's analysis. this essay is but one approach to that undermines Levy (1978, 1988) also refers to Smith nexus. It is not our intent to tout it imperi religiosity and but uses Smith's treatment of morals and alistically. Nevertheless, the approach facilitates religion to model the ch~rch as a provider deserves serious, scholarly attention. To secularization. of information and behavioral restrictions sociologists of religion, the economic that can increase individual utility. The approach offers a new theoretical orienta model assumes that individuals have tion, more systematic, and perhaps more limited information and non-eonvex utility fruitful than the diverse generalizations functions, from which it follows that previously used to explain religious individuals' efforts to maximize their behavior and institutions. To economists utility often lead to local, rather than of faith, the economics of religion provides global, maxima. Under these circum a new way to apply professional skills to a stances, a church's religious and moral subject of great personal importance. And teachings can function as exogenous even to secular economists with no par constraints that steer people toward their ticular interest in religion, the topic holds true optimum. out the tantalizing prospect of their Smith's theory has also been subjected discipline illuminating yet another area of to empirical tests. Iannaccone (1991) human behavior. _ examines contemporary data from eigh teen countries to see ifcompetition stimu lates religious activity. He finds that among Protestants, church attendance, BIBUOGRAPHY belief in God, and the perceived impor Since many of the papers we cite are as yet tance of religion are all greater in countries unpublished and many others are scattered with numerous competing churches than across jounuUs in economics and sociology, we in countries dominated by a single church. invite readers to write us for a photocopied Finke and Stark (1988) and Stark and packet of the papers. We would appreciate $15 McCann (1989) draw similar conclusions to ewer our costs of copying and postage. based on the analysis of contemporary and historical data across cities in the U.S. Anderson, Gary M. 1988. 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