II. Economics of Religion

1. Competition and Product Quality

2. Puzzles of sects: prohibitions and sacrifices

3. Theory: The club solution

4. Testable Implications: Christian and Jewish

Sects

5. Testable Implications: Radical Islam -

Indonesia, India, Rural Bangladesh, Cote

D’Ivoire, Pakistan

6. Selection or incentive effects?

Experimental evidence

7. Conclusions

Next time.. Violent Puzzles

2

1. Competition and Product Quality

Adam Smith, Book III, Ch. III (p. 309)

3

2. Puzzles of Sects

4

5

Hamas

6

Hamas 2006

7

Taliban

10

Puzzles Among Religious Sects

1. Why Prohibitions and Sacrifices?

(Iannaccone 92)

2. Why high fertility and low returns to

schooling? (Berman 00, Berman-Stepanyan

04)

3. Why so effective at coordinated violence and

political mobilization?

11

12

Literature: Radical Islamists,

Christian Anabaptists, Ultra-Orthodox Jews

• Qualitative facts on sects:

- Many qualitative similarities among sects of different religions: mutual insurance, dress codes, conservative mores - define them as sacrifices and prohibitions

• Quantitative facts about sects:

– High fertility among Christian Anabaptists and Ultra-Orthodox Jews.

– Private monetary returns to education are almost zero among Israeli Ultra-Orthodox Jews (for the marginal year), yet they remain in seminaries till age 40 on average [diagram]

13

14

Poverty by

choice

15

16

17

Fertility Differential - Ultra-Orthodox Jews

TABLE V

TOTAL FERTILITY RATES OF ISRAELI SUBPOPULATIONS

A. Source: Labour Force Survey

Period Full Population Jews Ultra-0rthodox Jewsc

All other Jews

1980-1982 2.99a 2.76 6.49 2.61

(0.04)b (0.04) (0.31) (0.04)

obs. 31347 27635 1040 26569

1995/96 2.66 2.53 7.61 2.27

(0.04) (0.05) (0.30) (0.05)

obs. 27866 22776 1021 21755

Change -0.33 -0.23 1.13 -0.34

(0.06) (0.06) (0.44) (0.06)

B. Source: Population Registry

Period Full Population Jews Christians Muslims

1980 3.14 2.76 2.66 5.98

1995/96 2.90 2.57 2.19 4.65

Change -0.24 -0.19 -0.47 -1.33

18

3. Clubs

Why Prohibitions, Sacrifices, High Fertility?

..and why attend a school which is dominated as a HC investment?

Proposed explanation

• Club-good theory of religious sects – sects provide economic

services through cooperative production

(Iannaccone, 1992, Berman, 2000)

• Sect – a religious group that:

– imposes extreme prohibitions and requires distinctive

sacrifices

– views secular society as corrupt, dangerous, and threatening

– economic life: typically provides high levels of mutual

insurance, and local public goods

19

Analogy: Study Group as a Club

• A study group is a club, where I benefit from

my study R and the average R of colleagues

.

• A good citizen comes prepared, asks

questions, provides good answers, all because

she studies.

• Lacking a way to subsidize R, the club would

like to tax outside activity of members.

• So a research club should tax, or tithe, if it

can. But it typically lacks tax authority.

),,( RRSU

20

Optimal Prohibitions for a Study Group

• Efficient proxy taxes on

outside options might be:

• Prohibit alcohol with

nonmembers

• Prohibit beach on Sabbath

• Dress strangely

• Limit eating with

nonmembers through dietary

restrictions

• Limit communication with

outsiders by speaking arcane

language

• With enough prohibitions

study group members would

have nothing better to do

with their time than study

• Enforcement could be

through threat of expulsion

or through peer pressure

If this example doesn’t work for you, think of a fraternity (or a team),

where R is partying (training) and helping out other members.

21

Formally: Rational choice approach to religious

sects

Iannaccone (1992)

Formally..

(1) Ui = U (Si, Ri, C({Rj}) ), where S – consumption,

R – religious activity,

C – local public good .

(2) C({Rj}) = for j=1 to J .

C could be mutual insurance, health care, education.

(3) R = T – H . Budget constraint for time.

(4) wH = S . Budget constraint for money.

Figure 1 illustrates optimal religious prohibitions.

J

j

j

J

RR

1

22

Fig 1: Optimal Taxation Through Prohibition

Work hours

Wag

es

Religious activity

23

Rationalizing Sacrifices

Imagine heterogeneity in wj (or in marginal

utility of R, ).

Members would prefer that other members be

low wage, since that implies higher R and

larger externalities, through .

Low R members are free-riders who it would be

efficient to exclude; but wj is unobserved.

Note: prohibitions on the intensive margin,

sacrifices on the extensive.

jRU

),,( RRSU

24

Rational Sacrifice (cont.)

• Voluntary sacrifices of time might exclude

high wage individuals but include low wage

for an efficient separating equilibrium.

e.g. Insist on an arcane language that

takes years to learn,

or religious education with no

market value.

25

0

0

B1

A1

A2B2

High wage, low C

Low wage, low C

High wage, high C,sacrifice

Low wage, high Csacrifice

Work Hours (H) R+KH1

Rationalizing Sacrifices

26

27

4. Testable Implications of the Club

Model

(so far)

The stricter the prohibitions and sacrifices..

1. The smaller the congregation (so it can enforce cooperation)

2. The poorer the congregants (as the poor need services more)

3. The lower the congregants education (for same reason)

4. The more frequently congregants attend

5. The higher a proportion of income donated (more cooperation)

6. The greater the social cohesion of the congregation

7. The fewer outside contacts the congregants have.

Now look at Iannaccone’s Table I

28

Iannaccone’s comparison of sects and churches (2)

29

Sects and Churches in National Data

30

Iannaccone’s comparison of sects and churches

31

Testable

implications

on new data:

Education

and Fertility

by Origin

32

Fig 1: Optimal Taxation Through Prohibition, and Fertility

Work hours

Wag

es

Religious activity

& Fertility

33

Aside: Israeli Politics and UO Jews

• Left-right split on foreign policy in Israel

• ..creates a prisoner’s dilemma in subsidies to

median political party

• Enabled by lack of constitutional prohibition

of discriminatory public policy (like many

nascent democracies, both today and

historically)

• Result: Massive increases in subsidies to UO

Jewish parties over 1980s and 1990s.

34

Total Fertility Rates by Origin: UO Jews

Period Sephardi Ashkenazi Native Israeli Parents

All Ultra-Orthodox

1980-1984 4.57 6.91 8.70 6.28

(0.36) (0.32) (0.72) (0.23)

obs. 613 764 194 1574

1994-1996 7.24 7.80 7.85 7.57

(0.50) (0.42) (0.54) (0.27)

obs. 417 560 321 1310

Change 2.67 0.89 -0.84 1.30

(0.62) (0.53) (0.90) (0.35)

Difference in difference:

Sephardi - Ashkenazi 1.78

(0.82)

35

Testable Implication: Sacrifice and

Education

• Return to the study group, or historic village

example of a club

• The club wants a signal of commitment to

distinguish free riders from loyal members

• The more valuable is membership, the longer

the queue of potential free riders

- thus the more valuable is membership, the

greater the sacrifice required.

36

Protracted Yeshiva attendance:

We have an explanation

Recall: a) return to schooling is about zero,

b) UO in US seldom remain past their early 20s,

.. yet Israeli UO remain till 40 on average.

37

5. Testable Implications, Radical Islam:

Fertility and Schooling among Islamists

• Data : extensive search yielded household surveys in

Indonesia, India, Bangladesh, Cote D’Ivoire, Pakistan (B&S

‘04) and Israel (B ‘00)

• Women in families with Islamic and Ultra-Orthodox

religious education have higher fertility in all 6 countries,

by 2/3 to one more expected lifetime child.

• Islamic and Ultra-Orthodox education have significantly

lower rates of return than secular education in 3 of 6

countries; insignificant results in other 3 countries

• Prevalence of radical religious schooling:

2-5% of Muslims in Rural Bangladesh, Pakistan, Cote

D’Ivoire,

5% of Israeli Jews

14-25% in Indonesia and two Indian States

(Uttar Pradesh and Bihar)

38

Ave

rag

e N

um

be

r o

f S

urv

ivin

g C

hild

ren

Age

0

2

4

6 Islamic Other Muslim

15-19 20-24 25-29 30-34 35-39 40-44 45-49

Example: Rural Bangladesh - fertility

39

Differential Fertility by Sect Membership

Six countries

Israel Indo-

nesia

UP &

Bihar

Bangla-

desh

Cote

D’Ivoire

Pakistan

Diff.

fertility

5.34

(.30)

0.67

(.26)

0.77

(.43)

0.58

(.27)

1.34

(.46)

0.66

(.39)

Sect

indicator

Any Own Any Own Any Any

40

Rural Bangladesh: returns to education

•Islamic indicator: person’s own schooling

Table 16. LHS Variable: Logarithm of monthly earnings

(1) (2) (3)

Education (in years) 0.084 0.089 0.097

(0.009)*** (0.009)*** (0.007)***

(of which) years of Islamic education -0.072 -0.073

(0.062) (0.034)**

Islamic School (including maktabs) -0.219 -0.122

(0.411) (0.271)

Muslim -0.435 -0.426 -0.393

(0.113)*** (0.113)*** (0.063)***

Constant 3.718 3.724 3.747

(0.218)*** (0.217)*** (0.120)***

Weights x x

Observations 4081 4081 4081

R-squared 0.59 0.59 0.62

41

Differential Returns to Education by

Sect Membership - Six countries

Israel Indo-

nesia

UP &

Bihar

Bangla-

desh

Cote

D’Ivoire

Pakistan

Secular

schooling

.094

(.002)

.116

(.005)

.122

(.008)

.097

(.007)

.175

(.010)

.132

(.006)

Religious

schooling

-.076

(.006)

-.022

(.013)

-.051

(.229)

-.073

(.034)

-.029

(.070)

-.048

(.026)

Mutual Aid and Religiosity in Indonesia

(Chen, JPE 2010)

42

Income and Pengajian use

43

Pengajian is

a religious

mutual-aid

system

Income and Madrassah Attendance

44

Schooling and Fertility among Amish

(L. Choon Wang 10)

45

Returns to

schooling

anyone?

Fertility

effects?

46

“Returns” to schooling, fertility effects

47

What’s wrong with

these estimates?

6. Selection or Incentives?

Voluntary sacrifice in an experiment

48

• Sacrifice has both selection and incentive effects

How to distinguish between them?

• What if you randomly assign sacrifice in a public good

provision experiment?

• Aimone at al (2011) conduct a voluntary contribution

game, preceded by a sacrifice stage.

• In the sacrifice stage, a control group is allowed to

choose levels of sacrifice, which sort them into like

clubs.

• A treatment group are randomly assigned levels of

sacrifice, which sort them into like clubs.

Details

49

• Second stage payoff is the sum of retained tokens (10-g) and

group contributions r G . r=.4 .

E.g., 5 member group at s*=.9 , each member sets g=2, then

each gets (10-g)*.9 + .4*G = 8*.9 + 4 = 11.2 .

• First stage, players choose s. Then they are sorted into groups

in descending order of s. s* averages s in each group.

Voluntary sacrifice

and contribution to public good

50

• Majority play close

to Nash: minimal

sacrifice and small

contribution

• But, voluntary

sacrifice occurs

• Sacrifice predicts

larger contributions

to public good.

Source: Aimone, Jason, Laurence Iannaccone, Michael Makowsky and Jared Rubin, “Endogenous Group Formation via Unproductive Costs,”

Chapman U. mimeo, 2011. http://faculty.fullerton.edu/jrubin/EndogGroup.pdf

Exogenous sacrifice

and contribution to public good

51

• When sacrifice is

randomly

assigned..

it has no effect on

contributions to

public good.

52

7. Conclusions

For students and researchers

Theory: Club good model does a pretty good job rationalizing (and predicting) sect behavior among Christians, Muslims and Jews.

Note: The claim is NOT that religion is only about the economics of local public goods, but that the economics provides at least some insight.

For Researchers

Measurement: Future data collection could make use of the religious schooling question in standard survey forms.

To verify that conjecture we would really like:

1. Other indicators of religiosity

2. Better understanding of the internal economies of radical Islamic communities

3. Measures of schooling costs

4. More data, especially more recent data, and from Middle Eastern countries.

Beyond Clubs: Research agenda of Economists of Religion at ASREC, NBER

http://www.thearda.com/asrec/archive/ASREC2012.asp

http://conference.nber.org/confer/2013/RCs13/RCs13prg.html