Friday, October 31, 2008

What did you expect on Halloween?

Here's an article on Wicca, a neopagan religion that economists of religion have not much studied (though others have). One interesting thing for us about Wicca is that Wiccans explicitly incorporate magic into their beliefs and practice. At first glance, we would expect the credibility of Wicca practices and beliefs to diminish as magical claims are falsified, but you might be surprised to know that the number of Wiccans appears to be growing. My guess is that this is because Wicca groups are structured to provide club goods. For example, Wicca groups (e.g., covens) are kept small and there can be probation periods before entry, both of which work to weed out free-riders; and initiation rituals, which are easy to exclude but also social events in which many people can participate, are classic club goods. Wicca groups thus provide many of the types of goods provided by other religious groups. They are more different from other religious groups in degree than in type. See this wikipedia entry on Wicca for more information.

Islamic banking during the financial crisis

A Washington Post article asks how Islamic banks are performing during the current financial crisis (you may need to log in for free at the web site to view the article). Islamic banks uphold Sharia (the Islamic law that was mentioned in an earlier post here), and one of the key features is that they do not charge interest. Because banks make earn profits from the interest on dispersed loans, Islamic banks must devise another way to earn profits. They do this by having profits structured into the loans in a way akin to interest but different enough to comply with Sharia. Islamic banks also tend to issue less risky loans. This has allowed them to perform better than others during the crisis, though, of course, they will usually have smaller returns on average. There is a standard risk-return trade-off here.

Wednesday, October 29, 2008

One reason why religion survives despite predictions of its demise

A Guardian UK article asks why religion has endured despite all the predictions of its demise. Here's one economics explanation given:
One underlying reason for religion's endurance is that science treats humans and intentions only as incidental elements in the universe, whereas for religion they are central. Science is not particularly well-suited to deal with people's existential anxieties – death, deception, sudden catastrophe, loneliness or longing for love or justice. It cannot tell us what we ought to do, only what we can do. Religion thrives because it addresses people's yearnings and society's moral needs.
In other words, there is a latent demand for certain goods that cannot be acquired via standard scientific method, so we not should not be surprised that suppliers of these goods, which we call religious goods, will survive in the marketplace. We will talk about this later in the quarter. The article also gives some (non-economics) cognitive/neurological explanations for the persistence of religion.

Tuesday, October 28, 2008

"Buddhist Temple Built from Beer Bottles"

Um, that's a lot of beer bottles.

More on people turning to religion during the financial crisis

See this Washington Post article.

The economics of Islamic law in Britain

This RNS article (via Pew, also reported elsewhere, e.g., this Times Online article) reports a new development in British courts regarding Islamic law. Sharia (see wikipedia) is the body of Islamic law. In western nations, this law has no official legal status. However, Muslims may still prefer to have Sharia councils rule in legal disputes, especially those concerning family or property, because they want those disputes to be resolved according to Islamic legal principles. The British government has just determined that parties in a Sharia court can apply for (British) legal approval of Sharia rulings. A British official would only have to ascertain that the Sharia ruling complied with British legal principles.

At one level, the economics of this development is straightforward. Parties often use an independent arbitrator (see wikipedia) to resolve contract disputes because doing so usually involves much fewer resources spent on lawyers and the development of legal documents and arguments. It also relieves pressure on the government's legal system because arbitration results can be legally binding while keeping the parties out of court. Thus, all parties benefit. Muslims who use Sharia councils to resolve their disputes are essentially using Islamic law to guide a private arbitration. They benefit because they get to have Islamic principles resolve their disputes and because the costs are lower than public courts, while the public benefits because the strain on the public courts is relieved. The recent British ruling actually established Sharia councils as private arbitrators.

But there are the subtler economic issues here, too. This development has its critics, and one of the biggest worries is that the Sharia courts will not comply with British legal principles, especially with regard to the treatment of women. Another concern is that Muslims will be further marginalized in British society because they are withdrawing to a privatized legal sector instead of using the public court system. Either way, this development would lead to increased stigmas as Muslims draw themselves apart from the rest of British society. This constitutes an increase in costly tension between Muslims and society.

We discussed how this sort of tension can actually help the group, but it is possible that this is not the case here. One of the Muslims' arguments is that other religious courts (e.g., Jewish) already had arbitration status, and so the development is really a way for Muslims and their practices to find improved acceptance in society. Put differently, this development should actually decrease tension as society becomes more accepting of Muslims' practices. If so, this decrease in tension, combined with the benefits of religiously-based arbitration, is a win-win situation. The key issue is whether or not the Sharia courts comply with the British principles of fairness and equity. This is what must play out in the future.

Monday, October 27, 2008

Investment funds as religious entrepreneurs

Check out this article about religiously-themed investment funds from the latest Time Magazine titled "Which Religion Picks the Best Stocks?" These investment funds cater to financial investors of particular religious traditions by using religious ideals or doctrines to guide the selection of assets to purchase. For example, Amana Funds, which an Islamic-themed fund, does not purchase stocks with more than 5% stake in alcohol, pork, or tobacco, all of these being impure goods.

In terms of profitability, these religious funds should in general do worse on average than other, let's call them secular, funds. Why? First, if religious funds did better than secular funds, then secular funds would switch to the religious investing strategy and do better than when using a secular strategy. Hence, secular funds should not do worse on average than religious funds. Second, religious funds are restricting themselves to a smaller set of financial assets. Barring an incentive to confine one's choices (which can arise in very strategic settings but I think not so much in this investing settings), this should only act to reduce the return. This does not mean secular funds always do better in a certain period of time; fluctuations and randomness can generate all sorts of outcomes, such as during our current financial crisis. It just means that secular funds should do better than religious funds on average. The difference is what we can call the religious premium; the amount the investor pays (gives up) to retain a religiously satisfactory investment strategy. The stronger the restrictions on investing, the larger the premium.

But the fact that the religious funds are expected to do worse and yet still survive in the marketplace is what makes them much more interesting. As I see it, a religious fund is a type of religious entrepreneur. The reason investors use these funds even when they know that the return is lower is that they value, for religious reasons, the knowledge that their investments are in companies that produce ethically appropriate goods and services. This knowledge and satisfaction is tied directly towards their religious proclivities, and so the fund can actually be thought of as providing a religious good. Thus, we observe a religious good being produced and sold not by a church but by an investment firm.

We can take the logic even further. As long as the barriers to entry into the investment industry are low, we should actually expect these entrepreneurs to emerge. Moreover, the religious premium can be a measure of an investor's commitment to ethical investing. Just how much are you willing to forgo in expected profits to follow an ethical investing strategy?

Friday, October 24, 2008

More of the supernatural in baseball

Here's some fun weekend reading as you watch the World Series.

Clubs and the economics of the open Eucharist

Another timely news article comes from today's Boston Globe titled "Who is Worthy to Receive?" Traditionally, Christian denominations only allowed official denomination members to participate in the Eucharist ritual communal meal of bread and wine/water (also called communion or sacrament). As the article explains, many stricter denominations retain the policy of exclusivity. Yet, over time the local leaders in many less-strict denominations have relaxed the exclusivity so that anybody (including a non-Christian) is allowed--or at least not forbidden--from participating even though official policy might forbid the practice.

Policies of exclusion are often labelled unfair or unkind--a value judgement which could be entirely valid. However, our economic analysis sheds new light on the practice. We will discuss in class that religious groups trying to provide certain religious goods often have policies of exclusion as part of an overall strategy to limiting free-riding. Think about it: a policy that states "only members in good standing can participate in the Eucharist" is effectively saying that only people contributing in some way to the congregation can receive the benefits. Though the policy is costly in part because it appears unkind, it can actually in the end work out to the benefit of the group precisely because it selectively rewards people who are contributing more to the group. This comes right out of our economic theory of clubs.

The theology professor quoted seems to recognize the crux of the issue:
"When you're trying to welcome people into a denomination and lower the signs
that say, 'This is a club and you can't get in,' how do you say, 'The church
welcomes you, and invites you to join us, but, oh, by the way, you can't come to
the table?' " said Fredrica Harris Thompsett, a professor of historical theology at
Episcopal Divinity School in Cambridge.
Though the quote uses the word "club" when referring to exclusivity, it (at least what is actually quoted) does not seem to recognize the free-rider issue.

Competing theologies of prosperity

Today's Wall Street Journal has an article on Prosperity Theology by the prominent scholar of religion Peter Berger (we'll encounter him later in our course). He writes that Prosperity Theology is:
. . . a version of Christianity asserting that material benefits will come to those who have faith, live a morally upright life and, not so incidentally, give money to the church. Broadly speaking, this is what Max Weber called the Protestant Ethic, but with much less emphasis on self-denial and more on hard work, planning for the future, family loyalty and educating one's children.
Berger also mentions a counter-theology:
[T]he prosperity gospel -- usually seen as being on the Christian right -- closely resembles the "liberation theology" of the Christian left, except that the latter's enrichment program is collective rather than individual. Liberation theology defined Christianity as essentially being a struggle of poor oppressed people against capitalism and imperialism.
Both theologies represent attempts to make religious thinking relevant for people who want economic security. Both stress that people must work to bring about the desired outcomes, though the former gives more credit to supernatural sources of this-worldly goods. Our theory suggests that each of these will survive as relevant religious teachings so long as the expected rewards of acting according to the teachings outweigh the costs. Liberation theology is challenged by the widespread belief that capitalism, despite its flaws, is better than the alternatives. Prosperity theology is challenged by the experiences of those who do not prosper as promised. But given that the teachings are both difficult to falsify, we should expect them both to be around for a while.

Thursday, October 23, 2008

How religion influences behavior?

In our class, we are using economic concepts to study individuals' religious choices, i.e., how economic incentives influence religious choices. But there's an equally important and interesting opposite direction: how religion influences individuals' economic choices.

Unfortunately, we only have time to focus on the first direction in our class, but you should be aware of the large body of research and thinking on the second direction of influence. For example, you have probably heard of Max Weber's idea that Protestantism helped promote the development of capitalism (see this wikipedia article).

The literature is actually too large to mention it all. But if you are interested in the most recent research on this second direction, then you can skim this short survey paper by Evelyn Lehrer. She writes (p. 9):
Commitment to religion--in its various manifestations, including the strength of religious beliefs and the extent of participation in private and public religious activities--can affect demographic and economic behavior via two major pathways. First, a higher level of religiosity may be expected to accentuate the effects of religious affiliation, e.g., the tendency for conservative Protestant women to display low levels of employment when young children are present in the household should be most pronounced among highly observant conservative Protestant couples. Second, the generally beneficial effects of religiosity on health and well-being can have important implications for economic and demographic outcomes, e.g., children raised with some religious involvement in their lives tend to have better performance in school and to achieve a higher level of educational attainment.

Religious capital theory in action

What perfect timing with this just published article on conversions into the Orthodox Church. Notice the first paragraph:
A new study of Orthodox Christians in America has found a larger-than-expected number of converts, mostly from Roman Catholic and evangelical Protestant backgrounds.
In practices and doctrines, Roman Catholicism is very similar to the Orthodox Church, so converts to the Orthodox Church from the Roman Catholic Church are retaining much of their religious capital when switching. The switch from evangelical Protestantism involves a bigger change, but that change is probably more in ritual and practice than in doctrine.

Notice who is not mentioned as converting. Converts into the Orthodox Church, which is a Christian denomination, are coming from other Christian denominations--not from Buddhism, not from Islam, not from Hinduism, etc. Here's our religious capital theory in action.

Tuesday, October 21, 2008

Submit post opportunity: praying for your 401(k)?

Here's a Time Magazine article asking if it is OK to pray for your 401(k) retirement account. This is begging for some economic analysis. If you want to submit a post on this topic, please email it to the blog administrator.

Monday, October 20, 2008

Religious tax-exempt status and campaigning: church-and-state or religion-and-politics?

We in the United States have a political doctrine of "separation of church and state." As commonly interpreted, the First Amendment says that government should not interfere with private citizens' "free exercise" of religion and should not "establish" an official state church. But this separation is often misinterpreted to mean that religion and politics should never mix, even though this view is contrary to what has always been the case in the U.S. For example, a person's religious beliefs and affiliations can inform and influence his or her politics, and religious groups are free to speak out on political issues with moral dimensions. Nothing is illegal about either of these infusions of religion into politics. Nonetheless, the boundaries between disallowed church-state relations and allowed religion-politics interplay is continually negotiated, and the rules of the game can change.

One of the boundaries being challenged is that which prohibits religious groups from supporting political candidates. As legally recognized institutions, religious groups are subject to tax laws, and most are registered as non-profit institutions--classified 501(c)(3) so you can write off your donation to your church from your taxes. If a religious group campaigns on behalf of a candidate, then its tax-exempt status is jeopardized. Losing tax exempt status is a BIG deal, so a religious group would not want to lose it. The economic logic behind wanting tax-exempt status is straightforward. Tax-exempt status decreases costs (churches do not have to pay taxes on their income), and because in the U.S. the government does not financially subsidize religious groups' primary activities, tax-exempt status allows for larger financial donations (the cost of contributing is lower to taxpayers because it is a tax write off). In short, tax-exempt status greatly improves a religious group's ability to provide religious goods and services in the American religious market. For more details on what is prohibited and why see this excellent Guide to the IRS Regulations compiled together by the Pew Forum on Religion and Public Life.

As described in this Pew Forum article, religious leaders are challenging the law that prohibits their involvement in campaigns. Yet, as the article states:
"While a strong majority of Americans support religion’s role in public life, a solid majority also expresses opposition to churches coming out in favor of particular political candidates."
What economic logic is behind the argument against the current rule? What economic logic is behind the argument for the status quo?

Welcome to the Religious Marketplace!

Welcome to "The Religious Marketplace," a blog created for free and open exchange on how economic thinking can improve our understanding of religious behavior. Though this blog was created originally for students of Professor McBride's "An Economic Approach to Religion" (ECON 17) course at UC Irvine, any visitors are welcome to participate.

The intention is that this blog will be a place for students and others to explore an economic way of thinking about current topics and events in the realm of religion. Personal opinions, as distinguished from economic analysis, are also allowed in the flow of discussion, though the primary focus should remain the economics of the issues.

We will adhere to a strict policy on comments: inappropriate comments will be removed by the administrator. Inappropriate comments include but are not limited to comments that include profanity, personal insults, derision of others' religiosity or lack of religiosity, and criticisms of particular religious groups.

Blog participants can also contribute by writing posts. Posts that meet a minimum standard of economic content will be published on the blog and will be eligible for extra credit in Prof. McBride's course. Please submit posts to the administrator at