Academic journal article Economic Inquiry

Deregulating Religion: The Economics of Church and State

Academic journal article Economic Inquiry

Deregulating Religion: The Economics of Church and State

Article excerpt


Enshrined in scripture, scholarship, and the media - the standard stories of religion recount creeping "secularization" punctuated by infrequent bursts of spirituality. Societies drift from faith to disbelief; pivotal figures receive revelations; and, if the proper social conditions prevail, the dispossessed experience outpourings of faith. Historians like McLoughlin [1978, 2] thus speak of America's "Great Awakenings," religious revivals of the 18th and 19th centuries rooted in "periods of cultural distortion and grave personal stress." Contemporary social histories portray the 1960s as a "consciousness reformation" in which millions of American youth joined cults and communes to meditate and repudiate materialism. And in the wake of Iran's revolution and Reagan's election, journalists and scholars proclaimed a "fundamentalist phenomenon" - Falwell at home and the Ayatollah abroad.

These are not the type of stories that economists tell. The defining features of the economic approach, characterized by Becker [1976, 5] as "maximizing behavior, market equilibrium, and stable preferences," are nowhere to be found. Small wonder the entire subject is ceded to disciples less committed to the framework of rational choice.

The abdication, however, is unwarranted. Economic theory complements the more traditional approaches to religion and counteracts many of their biases. In particular, it counteracts their failure to understand religious markets. By focusing on "charismatic" (or fanatical) prophets and credulous (or "brainwashed") followers, traditional interpretations overlook the more pedestrian, but also more comprehensible social forces that shape religious history. They especially overlook supply-side factors that alter the incentives and opportunities of religious firms, emphasizing instead demand-side shifts in the perceptions and needs of religious consumers.

In this paper, we will emphasize the supply side. We do so because it is routinely ignored, and because we are unimpressed by most demand-side explanations for religious change. Empirical studies show that the underlying determinants of religious demand (such as the average person's desire for supernatural comfort and explanations) vary far less than the conditions governing religious supply.(1) These studies also prove that the standard, measurable determinants of consumer demand (such as income, education, and demographic characteristics) predict very little of the observed variation in religious belief and behavior. In practice, therefore, most demand-side explanations for religious change amount to little more than ad hoc postulations of altered tastes. Although we do not deny the role of extraordinary revelation in the spread of religion, we suspect that most prophetic genius is, to use the words of Thomas Edison, "one percent inspiration and ninety-nine percent perspiration."(2)

In speaking of "religious markets" we implicitly model religion as a commodityg - an object of choice and production. Consumers choose what religion (if any) they will accept and how extensively they will participate in it. Iannaccone [1988; 1992] has formalized this process of choice in other papers. Here, it suffices to emphasize a few basic facts. People can and often do change their religion or levels of religious participation. As with other commodities, this ability to choose constrains the producers of religion. Under competitive conditions, a particular religious firm will flourish only if it provides a commodity at least as attractive as its competitors'. And as in other markets, government regulation can profoundly affect the producers' incentives, the consumers' options, and the aggregate equilibrium.

Simple deregulation lies at the root of numerous religious trends and events; this is our basic message. America's exceptionally high levels of church attendance and Sweden's exceptionally low levels stem from the former country's competitive religious market and the latter's state-sponsored religious monopoly. …

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