Monday, October 26, 2009
Religious innovations in finance
A German bank is soon to begin offering financial services that comply with Islamic Sharia law. See these earlier posts here and here for some background info. Such financial services have existed in other countries, and actually did pretty well during the recent financial crisis. This news is another indication of the continued growth of Islam in Germany and Europe. And in case you were wondering, yes, financial services also cater to people of other faiths. Overall, this is just another way in which religion and other aspects of life intersect.
Thursday, October 22, 2009
Book Club - God is Back #3
In chapters 5-7 of their book God is Back, the authors explore why and in what ways religion is thriving in America. One argument they make is that religion provides something that is without close substitutes and that is demanded just as much in today's modern world as in the past. Another claim is that Evangelicals, which form one of largest categories of highly engaged religious persons, have ramped up their intellectual credibility. But it is another claim that I want to explore here:
Network effects, also called network externalities, arise when one person's consumption of a good influences another's consumption of that good. For example, my benefits from using Facebook are more enjoyable if all of my friends also use Facebook. A similar effect arises with religion: if all of my friends belong to religion X, then I would enjoy religion X more than if they were not in religion X.
Economists have long recognized that network effects often result in natural monopolies, which arise when a single-supplier is the most efficient industry structure. That religion exhibits network effects but has not led to a natural monopoly in the U.S. may be due to the other characteristics of religion that are not found with other natural monopoly settings, such as low barriers to entry.
What other reasons help explain why religion in the U.S. is quite competitive despite the network effects that work in favor of natural monopoly?
The American religious marketplace is almost a study in perfect competition: there are no real barriers to entry, the domestic market is big enough to support a mind-boggling variety of religious producers, and new religious entrepreneurs are always rising up to challenge incumbents. (P. 174)I agree with their conclusion, yet their discussion misses a glaring issue. How is it that the religious marketplace is so competitive when there are such strong network effects that work in favor of religious monopoly?
Network effects, also called network externalities, arise when one person's consumption of a good influences another's consumption of that good. For example, my benefits from using Facebook are more enjoyable if all of my friends also use Facebook. A similar effect arises with religion: if all of my friends belong to religion X, then I would enjoy religion X more than if they were not in religion X.
Economists have long recognized that network effects often result in natural monopolies, which arise when a single-supplier is the most efficient industry structure. That religion exhibits network effects but has not led to a natural monopoly in the U.S. may be due to the other characteristics of religion that are not found with other natural monopoly settings, such as low barriers to entry.
What other reasons help explain why religion in the U.S. is quite competitive despite the network effects that work in favor of natural monopoly?
Wednesday, October 21, 2009
Religious capital and the Vatican
What a coincidence that on the same day (yesterday) as our lecture on religious capital the Vatican announced a new policy that makes it easier for dissatisfied Anglicans to switch to Roman Catholicism. The key background to the story is that Anglicans disagree about what should be the Anglican Communion's policy on same-sex marriage and the ordination of gays and women.
From the third paragraph of the AP news article:
A simple prediction is that this new Vatican policy should lead to more switching from Anglicanism to Roman Catholicism. I expect this will be the case, however, there are mitigating factors. An important one is the perceived trajectory and timing of changes in Anglican policy. If policy is expected to change in the direction of supporting, say, same-sex marriages, then there would be more switching today than there would be without such expectations. Moreover, some people may seek to remain Anglican until policy changes actually occur, staying in the meantime with the hope that the policies will not change. The bottom line is that the exact number of switchers might not be very large initially, and the total number of switchers over the course of the next years will depend on the timing of the changes, if any, in Anglican policy.
From the third paragraph of the AP news article:
The change means conservative Anglicans from around the world will be able to join the Catholic Church while retaining aspects of their Anglican liturgy and identity...In our language, the Vatican is deliberately reducing the costs of switching from Anglicanism (Episcopalianism in the U.S.) to Roman Catholicism by making it possible for Anglican switchers to retain more of their religious capital.
A simple prediction is that this new Vatican policy should lead to more switching from Anglicanism to Roman Catholicism. I expect this will be the case, however, there are mitigating factors. An important one is the perceived trajectory and timing of changes in Anglican policy. If policy is expected to change in the direction of supporting, say, same-sex marriages, then there would be more switching today than there would be without such expectations. Moreover, some people may seek to remain Anglican until policy changes actually occur, staying in the meantime with the hope that the policies will not change. The bottom line is that the exact number of switchers might not be very large initially, and the total number of switchers over the course of the next years will depend on the timing of the changes, if any, in Anglican policy.
Monday, October 19, 2009
Donating money to church during the recession
A recent USA Today/Gallop poll finds that, relative to twelve months ago, the number of American donating money to churches has not changed and the number of Americans volunteering at churches has increased.
This second finding is intuitive: if people out of work have a lower opportunity cost of time, they may devote it to religious volunteering. The article does not specify what type of volunteering is done, and that would be informative. Perhaps some volunteering may also serve indirectly to help networking for job opportunities.
The first finding may seem counter intuitive, but later in the article you read that people are donating less money rather than not donating at all. If incomes take hit, this is not surprising. The benefits associated with religious giving may not have changed dramatically during the recession, but the cost of giving up part of your now lower income may be higher than before. People reduce the amounts they give but not down to nothing.
Seems like our simple economics logic does pretty well explaining this pattern found in the poll.
This second finding is intuitive: if people out of work have a lower opportunity cost of time, they may devote it to religious volunteering. The article does not specify what type of volunteering is done, and that would be informative. Perhaps some volunteering may also serve indirectly to help networking for job opportunities.
The first finding may seem counter intuitive, but later in the article you read that people are donating less money rather than not donating at all. If incomes take hit, this is not surprising. The benefits associated with religious giving may not have changed dramatically during the recession, but the cost of giving up part of your now lower income may be higher than before. People reduce the amounts they give but not down to nothing.
Seems like our simple economics logic does pretty well explaining this pattern found in the poll.
Thursday, October 15, 2009
Book Club - God is Back #2
In chapters 1-4 of God is Back, the authors offer an explanation for why religion is so different in the United States than in Europe. One of the biggest factors they cite is the American First Amendment. In the authors' words:
Government involvement in religious markets can be justified by arguments similar to those used to justify other government interventions. For example, if religion is a public good that is under-supplied in open markets, then government intervention would be warranted according to standard economic theory. The fact that religion thrives in places like the U.S. where it is not provided by government raises questions. Is there something about religion that makes it different from other goods that we believe ought to be supplied by government? What exactly makes it different? What are the economics behind any difference?
[The First Amendment] created tolerance in its fullest sense: not just the top-down tolerance involved in allowing dissent but the bottom-up tolerance that recognizes that individuals have a right to choose their own religious opinions. And it introduced competition: churches had to get people in through the door. (P. 62)Why did this make lead to religious vitality in the U.S. while religiosity declined in Europe?
Adam Smith gave the best answer to this question more than two centuries ago in The Wealth of Nations: a free market in religion forces clergy to compete for market share. (P. 64)By drawing lines between churches and the state, religion was actually, and perhaps surprisingly, strengthened. This is less surprising if we imagine that government, should it intrude into churches, would undermine churches' innovation in the face of competition, just as government intrusions into other markets could undermine innovation. In fact, religion might be one of the best examples of this.
Government involvement in religious markets can be justified by arguments similar to those used to justify other government interventions. For example, if religion is a public good that is under-supplied in open markets, then government intervention would be warranted according to standard economic theory. The fact that religion thrives in places like the U.S. where it is not provided by government raises questions. Is there something about religion that makes it different from other goods that we believe ought to be supplied by government? What exactly makes it different? What are the economics behind any difference?
Monday, October 12, 2009
Religion and the Nobel Winners
With all economists say about markets in which products are bought and sold, you might want to stop and think about all your interactions that are outside of such traditionally conceived markets. The two 2009 Nobel Prize winners in Economics Elinor Ostrom and Oliver Williamson made their careers exploring the boundaries of markets. But do their insights have any bearing on the economics of religion?
Elinor Ostrom is best known for her work on common property resources. Think of the overfishing of lakes or overgrazing of pastures. Her work shows that, although people usually cannot enforce the most efficient consumption of common resources, they often are able to coordinate efforts to do better than what simple theory predicts they would do. Some of her insights into how people work within communities to detect and punish free-riders are directly relevant to our study of how religious groups coordinate their own actions. Groups devise internal ways to enforce good behavior, and they are very creative in doing so. We will talk about religious groups in this way, i.e., as institutions that have developed ingenious ways of solving collective action problems.
Oliver Williamson's work focuses on the boundaries of the firm. His ideas confront why it is that firms even exist, why some exchanges occur at prices, and why some exchanges occur within hierarchies, like boss-to-underling. Firms often must decide which decisions to make via the price mechanism and which to make through hierarchies, and his work argues that the cost of engaging in transactions--the so-called transactions cost--determines, in part, which method is used. Churches face similar problems in deciding how best to structure their congregational activities, which goods to produce themselves, and which to have group members get from outside markets, and so on.
Though I see connections between the Nobel winners' work and the economics of religion, I know of no systematic attempt to tie their work more directly to religion. Maybe the announcement of their prize will help spark such work. I would love to see it.
Elinor Ostrom is best known for her work on common property resources. Think of the overfishing of lakes or overgrazing of pastures. Her work shows that, although people usually cannot enforce the most efficient consumption of common resources, they often are able to coordinate efforts to do better than what simple theory predicts they would do. Some of her insights into how people work within communities to detect and punish free-riders are directly relevant to our study of how religious groups coordinate their own actions. Groups devise internal ways to enforce good behavior, and they are very creative in doing so. We will talk about religious groups in this way, i.e., as institutions that have developed ingenious ways of solving collective action problems.
Oliver Williamson's work focuses on the boundaries of the firm. His ideas confront why it is that firms even exist, why some exchanges occur at prices, and why some exchanges occur within hierarchies, like boss-to-underling. Firms often must decide which decisions to make via the price mechanism and which to make through hierarchies, and his work argues that the cost of engaging in transactions--the so-called transactions cost--determines, in part, which method is used. Churches face similar problems in deciding how best to structure their congregational activities, which goods to produce themselves, and which to have group members get from outside markets, and so on.
Though I see connections between the Nobel winners' work and the economics of religion, I know of no systematic attempt to tie their work more directly to religion. Maybe the announcement of their prize will help spark such work. I would love to see it.
Thursday, October 8, 2009
Book Club - God is Back #1
In the introduction to their book, God is Back, Micklethwait and Wooldridge set up a number of arguments of interest to us. Instead of summarizing them all here, let me highlight one of their claims that they will attempt to establish during the course of the book.
They explore the distinction between what they call the American and European views of the relationship between religion and modernity. They say that whereas Europeans (and non-European intellectuals) tend to view modernity as undermining religion, Americans have believed that religion can thrive in the face of modernity. With this in mind, they notice a trend:
One simple explanation is that religious goods are like other goods in an important way: competition breeds innovation, which increases the choice and quality of goods available in the market, and leads to an increase in amount of goods consumed by market participants.
But this answer needs more. Innovations are also occurring in the markets of substitutes for religion, so how is religion keeping up? Will religion eventually reach a saturation point once previously closed countries have been open a sufficiently long time? Does an increased awareness of religious choice imply that religious groups are catering to satisfying what people want rather than trying to convince people to change what they value and therefore imply less staying power as people religious tastes change?
So back to the big question: If the authors are correct that God has surged back into people's lives, can we attribute any credit to increased competition and choice, and if so, how much?
They explore the distinction between what they call the American and European views of the relationship between religion and modernity. They say that whereas Europeans (and non-European intellectuals) tend to view modernity as undermining religion, Americans have believed that religion can thrive in the face of modernity. With this in mind, they notice a trend:
It now seems that the American model is spreading around the world: religion and modernity are going hand in hand... The very things that were supposed to destroy religion--democracy and markets, technology and reason--are combining to make it stronger. (P. 12)More specifically:
The biggest problem for the prophets of secularization is that the surge of religion is being driven by the same two things that have driven the success of market capitalism: competition and choice. (P. 21)Here's the big question for us to chew on: How might competition and choice, as they increase, actually lead to a surge in religion?
One simple explanation is that religious goods are like other goods in an important way: competition breeds innovation, which increases the choice and quality of goods available in the market, and leads to an increase in amount of goods consumed by market participants.
But this answer needs more. Innovations are also occurring in the markets of substitutes for religion, so how is religion keeping up? Will religion eventually reach a saturation point once previously closed countries have been open a sufficiently long time? Does an increased awareness of religious choice imply that religious groups are catering to satisfying what people want rather than trying to convince people to change what they value and therefore imply less staying power as people religious tastes change?
So back to the big question: If the authors are correct that God has surged back into people's lives, can we attribute any credit to increased competition and choice, and if so, how much?
Thursday, October 1, 2009
Selling your house the supernatural way
Supernatural methods are available for many things including selling your house according to this NY Times article. It is really quite simple. St. Joseph is a Catholic saint who intercedes on behalf of many people for many various concerns, including help for families, expectant mothers, selling a house, and more. To enlist his help in selling your house, you can purchase a St. Joseph statue (see here), and bury it in your yard. Some prayer may needed as well.
Many things pop out from the article. First, sales of St. Joseph statues appear to be countercyclical. That is, they sell better during bad economic times. See this earlier post for another countercyclical religious good and a simple supply-demand explanation. Can you think of other countercyclical religious goods? Any evidence for your claim?
Second, about tw0-thirds down, the writer seems to confuse magic and religion. I would classify this as religion because, as I understand it, St. Joseph himself is to be involved and not just the statue.
Third, notice that people report different experiences. Some believe the supernatural appeal worked; others do not. But we can understand that the practice can persist because, first, it is not falsifiable, and second, it is not very costly to do.
Finally, at the bottom we learn that non-Catholics as well as Catholics to use the St. Joseph statue for help selling a home. We often see that people mix practices from multiple religious traditions. One question is why we do not observe more mixing than we do.
Many things pop out from the article. First, sales of St. Joseph statues appear to be countercyclical. That is, they sell better during bad economic times. See this earlier post for another countercyclical religious good and a simple supply-demand explanation. Can you think of other countercyclical religious goods? Any evidence for your claim?
Second, about tw0-thirds down, the writer seems to confuse magic and religion. I would classify this as religion because, as I understand it, St. Joseph himself is to be involved and not just the statue.
Third, notice that people report different experiences. Some believe the supernatural appeal worked; others do not. But we can understand that the practice can persist because, first, it is not falsifiable, and second, it is not very costly to do.
Finally, at the bottom we learn that non-Catholics as well as Catholics to use the St. Joseph statue for help selling a home. We often see that people mix practices from multiple religious traditions. One question is why we do not observe more mixing than we do.
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