The Economics of Religion
Oct 9 2006

Larry Iannaccone of George Mason University talks with EconTalk's Russ Roberts about the economics of religion. Iannaccone explains why Americans are more religious than Europeans, why Americans became more religious after the colonies became the United States and why it can be rational and rewarding to make religious sacrifices. Join us for a fascinating exploration of the human side of religion.

Addendum: Check out a follow-up question addressed in this Mailbag (Time Mark 54:01)
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Explore audio highlights, further reading that will help you delve deeper into this week’s episode, and vigorous conversations in the form of our comments section below.
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Oct 15 2006 at 11:13am

Fascinating! Almost "revelatory", to use an inside joke.
I know that this is merely semantics, and you were very careful in your qualifiers (example in your usage of the word "cults"), but just to point out that irreligiosity and atheism are not exactly terms I would use interchangeably. The Buddhists are technically atheists.

  • A sampling of Larry Iannaccone's research
  • See GMU's new Center for the Economic Study of Religion (including information on staff, courses, workshops, research projects, and the like)
  • The Association for the Study of Religion and Economics
  • The ARDA, a website Iannaccone mentions that allows you to explore various data on religion
  • Religious Fundamentalism and the Art of Motorcycle Club Maintenance, by Don Cox. Discussion of Iannaccone's contributions to the economics of clubs and religious groups. Econlib, August 5, 2002.
  • Adam Smith laid the foundation for an economics of religion more than two hundred years ago. In an important, but largely ignored chapter of The Wealth of Nations, Smith argued that self-interest motivates clergy just as it does secular producers, that market forces constrain churches just as they do secular firms; and that the benefits of competition, the burdens of monopoly, and the hazards of government regulation affect religion like any other sector of the economy. Consider, for example, the following passage:
    The teachers of [religion]..., in the same manner as other teachers, may either depend altogether for their subsistence upon the voluntary contributions of their hearers; or they may derive it from some other fund to which the law of their country many entitle them.... Their exertion, their zeal and industry, are likely to be much greater in the former situation than the latter. In this respect the teachers of new religions have always had a considerable advantage in attacking those ancient and established systems of which the clergy, reposing themselves upon their benefices, had neglected to keep up the fervour of the faith and devotion in the great body of the people.... (An Inquiry into the Nature and Causes of the Wealth of Nations par. V.1.190, Cannan edition. Also, Glasgow edition, Liberty Fund, 1981 vol. 2 p. 789].)
  • On EconLog: religious stereotyping. Bryan Caplan follows up on a recent thought-provoking talk by Iannaccone



Podcast Episode Highlights
0:10What is the economics of religion? Uses tools of economics to analyze the human side of religion. What is it not? It is not primarily about the study of money and religion or about the financing of religion. It is also not about assessing the truth of one religion vs. another. Religion is about people and the ways they interact, institutions, values. Why do different denominations have different approaches? Why do some religions grow and others decline? Why do religions sometimes bring out the best—and the worst—in people? Gary Becker: Economic approach differs from sociological approach by its unflinching interest in maximizing behavior, rational choice, stability of preferences, markets, and market equilibrium. We don't just attribute behavior to irrationality or the inexplicable—we look for pricing and incentive structures.
6:28Three levels: households, congregations, markets (nations, regions). When you are looking at religions at that third level, think of them as a market, with different religions (firms) competing for congregants. Appealing religions attract more participants. More freedom means more entrepreneurship, and in some sense more and better religion. Adam Smith wrote about this approach in the Wealth of Nations. Example: Middle Ages in Europe. Usually one official State Church: e.g., Church of England. That one church enjoyed a monopoly or government favors, and you might find yourself persecuted if you belonged to another church. Vestiges even today: might be restrictions on building or publications. Even stronger barriers in Islamic world, where you can be jailed for trying to make converts.
11:25Barriers to entry, Like the Post Office: if you elbow out the competition you don't get the best service. Research, cross-country, 1960s-'70s: Countries that are most religiously free have greatest religiosity—highest rates of church attendance, highest rate of belief (e.g., U.S.). Low levels of attendance when church is branch of government (e.g., Sweden). Research over time. In U.S.: World's first large-scale experiment in free-market religion. First amendment establishment clause and free-exercise clause. At the time this was passed, most colonies had their own established churches. Prediction was that if you got rid of that, people would walk away from the church. What happened was revival of religion, though the established churches did less well. Went from 13% church membership to 30-40% by 1850; today, 50-60%.
18:17Some people argue that you can't talk about rational choice—faith is fundamentally outside the rational, so economics can't talk about these things. Abstract arguments about the use of rationality are un-useful. Pragmatic side: the same claim about the theoretical uselessness of economic approaches has been used about the economics of the family, addiction, politics, etc. But that list turns out to be the list of Nobel Prizes granted in economics! Economic predictions are opposite of those sociologists have argued, and economic theory turned out to be right. Additional insights from economic tools.
23:07Cults, non-mainstream groups. Popular perception: Jonestown, being abducted, brainwashed, Waco fiasco. But those images are wrong. Sociologists, psychologists studied these sectarian, non-standard groups and looked at what they were actually doing. Found that vast majority were normal, mostly young, healthy, reasonably well-educated, many left after a short time none-the-worse-for-wear. Philanthropic, hard-working. Heavy-handed government intervention may have thrown cohesive groups into disarray and violence. Some economic value can only be produced in groups. Those kinds of groups are subject to the free-rider problem: free-loaders who come for the attention but who don't do the dishes. Groups try to combat this problem, but the very things that make a group seem extreme are the same things that promote commitment. Outsiders join those groups because they offer benefits they can't otherwise get—trade-off is worth it for them. Example: cults/sects often regulate what you wear or how you wear your hair or your sexual conduct, what you eat. You can tell in an instant if the person is complying: Hare Krishna group: shave head, wear pink robe, go around chanting. Immediately avoids half-hearted joiners. Groups have limited resources to check compliance.
33:59What are the benefits? These sacrificing stigma, would not make rational sense on your own. But in a group context, it makes more sense. It pushes aside things we would otherwise do if we were not members. Some things, like love, can only be done in groups. Help doesn't happen without high levels of mutual commitment. Mormons, Jews: Meals provided for families with newborns. But can't you just get take-out? Food is an important part of community. Sharing goes beyond the food. Intellectuals sometimes associate religion with beliefs in the supernatural, but it's not just that. It's also about the way we behave. Can't write a contract for receiving affection or love. Successful religions bind together the material and the spiritual. Family that eats out all the time at McDonald's isn't suffering for lack of nutrition, but for lack of connection of being a family. Elderly don't want to go to even the best of rest homes. People want open-ended commitment. "Religions excel at providing the things that you can't buy." More cults where civil society is dysfunctional.
42:47Skeptic might say: You are assuming there is some benefit. Any evidence? By looking at those who are somewhat more in need we can get some evidence. Elderly, young not particularly irrational, but both have relatively more needs. Religions historically provide rest homes and set norms for providing for the elderly, and for the young. Incentives are changed. Religion provides direct and indirect support, say against temptation to misbehave. Self-help groups, e.g., Alcoholics Anonymous, have a religious dimension, invoke transcendent principles. Religious and quasi-religious groups provide these very real benefits. Looks irrational to outsiders.
48:19Shared goals that are transcendent. Football fans have a sense of cohesiveness, group identity—goofy clothes, regular activity, emotional high. Some people do not enjoy that, do not want to be part of a group. Maybe atheists just don't enjoy the group feeling, and may not even believe it exists. Maybe that leads to believing that those who do are irrational. Many academics have this view: Is religion just a crutch, sucking in the ignorant? Any evidence? First, compared to the population, religious people are the statistical norm, not the exception—majority of most populations throughout history. Series of misperceptions, arguing that irreligion is the norm. Your starting point about what the norm is matters. Psychological profiles and demographics of the religious show that they tend to be about as educated, wealthy, psychologically normal. But note word "about"—the ARDA website allows you to look explore some of these results. Small positive association between religiosity and education. Tails off for Ph.D. training. Journalists, academics tend to be less religious than equally educated in other fields. Differences are small. Evangelicals and religious right have education levels that are now indistinguishable from the general public. Average atheist is in fact not the well-educated, but young single males with low education and low income! Intellectual atheists often think of themselves as bold individualists, but it is almost cult-like—e.g., followers of Ayn Rand, cult-like but highly anti-religious. Exactly analogous to religious behavior, ways of speaking that isolate themselves. Economic study of human side of religion doesn't give you insight into the transcendent side of religion, but does give you insight into other group behaviors such as sports fans, national devotion, military recruiting. Might be used to do good, or to do bad. It's a tool.

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