Religion and relative prices

Religion and Relative Prices

PAUL A. PAUTLER*

In the recent past economists have broadened their range of studies to include many new and interesting phenomena. It seems, however, that the economic analysis of religious institutions and individuals' religious behavior have been overlooked in the search for new fields to con- quer. Several possible reasons for this oversight are apparent. First, the product that churches produce and offer for sale is difficult, if not im- possible, to define. Secondly, we cannot assert with any reasonable degree of certainty that all churches have the same objective function or even that they have the same maximand. It is conceivable that they are attempting to maxi- mize such diverse items as profits, number of members, number of souls reaching their ulti- mate destination, or the utility of the members of the churches' governing bodies?

To further cloud the attempt at a systematic analysis, the data on church financing and individual contributions are difficult to obtain un- less one has a friend in the employ of the Inter- nal Revenue Service. These problems have ap- peared insurmountable to many economists be- fore now and they may remain so, but some progress has been made in the study of the effects of variations in economic variables on religious behavior in both theoretical and empirical studies.

One such study concerning time allocation and church attendance was conducted by Azzi and Ehrenburg [1 ] in which they found some intriging results relating church attendance with factors such as age, sex, and income level. Sever-

*Texas A&M University. I wish to thank Robert B. Ekelund, Jr. for helpful comments on an earlier version of this paper.

One other problem with the study of religion is the designation of the "final destination" since the idea varies so widely between groups.

2 The modeling procedure for the test was not "eco-

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al other variables were also included in the analysis. They found evidence that persons receiving relatively high incomes were less likely to be church members than poorer individuals. Church attendance was found to increase over lower income ranges and decline as individuals entered higher income brackets. These results indicate that religious membership may be an income inferior good while church attendance moves from a normal to inferior status as income increases. The statistical strength of these relationships is not great, however. 2 On a theoretical level their paper predicts a number of behavioral effects, among them that individuals will shift to relatively time-intensive religions when income decreas- es and shift in the opposite direction with income increases? This extension of the "full price" model to studies of individual behavior appears promising and is at a minimum an interesting use of economic analysis.

Another recent work implying the relevance of economic factors in religious behavior is a study of substitution among religious organiza- tions by individuals due to changes in income levels. This analysis by Sales [3] indicates that as incomes decline individuals shift toward more authoritarian churches such as the Church of Jesus Christ of the Latterday Saints or the Ro- man Catholic Church and away from the less authoritarian Northern Baptist and Congrega- tional Christian Churches. This study implies: (1) that religions are not chosen on an expected permanent income basis since changes in transi- tory income seem to have some effect on reli-

nomic" in nature since relative prices and real income changes were not considered.

A time intensive religion would have to be defined relative to other religions. For example, the Reformed Jewish Church would be less time intensive (more price intensive) relative to other forms of the Jewish faith.

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gious preference; and (2) that the products sold by the two groups of churches are indeed differ-

ent. These findings are not astonishing and

might have reasonably been expected. What is notable, is the lack of attention that

economists have shown to the study of religion

given that these findings are in line with many economic hypotheses. 4 Neither the Azzi or Sales studies present solid evidence that the relation-

ship between economic variables and religious

behavior is strong, but they do suggest that at least some relationship is plausible both theoret-

ically and empirically.

Hypothesis and Test

This note attempts a slightly different test of

the strength of the economic relationship. Spe- cifically, it studies the effect of changes in a sur-

rogate price variable on the market shares of vari-

ous churches. The proposition that individuals

react to changes in relative prices by shifting to

relatively lower priced items has been a basic

tenet of microeconomic theory since its begin-

nings. If this proposition is true of goods and ser-

vices in general, we might expect that it would

be true of religious services also. In order to test this hypothesis, we must de-

fine an appropriate price variable and also a mea-

sure of the substitution that occurs between

churches. One surrogate that could be used for

4 The types of analyses that economists have made in the area of religion are exemplified by Adam Smith's ideas on the economics of church competition. He felt that religious groups should be divided into [4, p. 745 ] : ". . . two or three hundred, or perhaps into as many thousand small sects, of which no one could be con- siderable enough to disturb the public tranquility." His statements on religion were based on casual empiricism not on a rigorous theoretical or empirical foundation. Economists after Smith did use a more palatable theoretical base but did not, in general, include any empirical findings. For an analysis of Smith's views on religion see Reismann [2]. While economists have not studied religion to a great degree, there has been consider- able theoretical and empirical work done by sociologists concerning the effects of economic variables on religious behavior. Naturally, the point of view and pur- pose of the sociological studies has been different than that of the economist. The Sales study is just one example of the type of results that sociologists have discovered.

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price would simply be the average contribution

per member (Ci) for any given church (i). This is a rather unusual price variable in that contri-

butions are a voluntary payment. We must re- member, however, that in a very real sense the prices we pay for all goods are voluntary in that

we are not forced to purchase the products. The major difference between this measure and the usual type of price variable is that exclusion of

non-paying individuals is not explicitly practiced by churches, in general. ~ Still, the average contribution should give a first approximation of

the cost of belonging to a religious organization

for the average member. ' If we are willing to use Ci as a price surrogate,

we must still have a measure of the substitution

between churches over time. This was accom-

plished through the use of church market shares

defined by membership shares (MMSi). There- fore, the MMS of the i th church is simply the

membership of the ita church in a given year

divide d by the sum of membership in all churches

in the data in that same year. Using these variables as measures of price and market share we

should be able to test for the occurrence of substitution between churches. We would expect

this substitution effect, if indeed church mem-

bership is a "good," in the same sense as any of the other goods that economists have examined.

The two models used to test for the relation-

s This non-excludabilitY may also be the reason for the rather large number of sermons based on a plea for contributions which most churchgoers are exposed to, generally to their chagrin. The problem is somewhat similar to the "free rider" problem that occurs in the production of any good characterized by non-excludability. Still some substitution would be expected if a large number of potential producers offered the non- excludable good at varying relative prices which were measured by amounts actually paid (ex post) for the service. This problem, as well as questionable data ac- curacy, cause some skepticism as to the applicability of the priee measure.

' This test could also be attempted using the full price model taking time costs into account. It is obvious that different religions require a wide range of time investments from their members and changes in these time requirements would be an important part of a more detailed test. However, estimation of these relative time costs would add another major element of measurement error to the data.

PAUTLER:

ship between market shares and relative prices

were kept as simple as possible due to data gath-

ering problems and for ease of interpretation. The models were:

MMsi, t =oL + ~lRPi, t + ei, t ; (1)

i = 1 . . . 2 2 ; t - - 1 . . . 6

where MMSi, t is the market share of the i th

church in period t, ¢z is a constant term,

Ci, t rl

n

is the relative price of the i th churchin period t, and 6i, t is a random error term.

/~MMSI, j = OL "~- ~1 ARPi, j + ei, i ; (2)

i = 1 . . . 2 2 ; ] = 1 . . . 5

where AMMSi, i is the change in market share of the i th church from period t to period t - 1,

a is a constant term, ARPi, i is the change in relative price of the i th church from period t to pe-

RELIGION AND PRICES 71

riod t - 1, and ei, j is a random error term.

At this point some explanation of the use of

the relative price variable (RP) may be warrant- ed. Since substitution is caused by changes in relative and not absolute price, the price variable Ci was transformed to reflect the change that occurred in the average contribution of the i th church relative to an average of individual church

averages. While a change in price relative to other

goods might cause a substitution between church membership and other goods the market share of an individual church would only change if its

price relative to that of other close substitutes

(other churches) changed. This does not imply that the services that various churches provide

are homogeneous. This type of test would be

valid for close substitutes and is in essence a

study of individual firms market share within

an industry. Naturally, the closer the substitutes

the better the results would be expected to be. 7

The results of the empirical test are summa-

rized in Table 1. The test was run on 21 church-

es over a period covering six years from 1969 to

1974. 8 Only churches for which no data were

missing in the series were used. A listing of the

churches studied can be found in the Appendix.

TABLE 1

TEST RESULTS

Dependent n Variable ~ (1) RPi, (2) A RPI F R 2

1. 126 MMSi .1004 -0.0353 29.2335 .1908

(9.0204) (5.4068) 2. 105 AMMSi .00023 -0.00991 8.3120 .0747

(.5173) (2.8831)

SOURCE: Statistical Abstract of the United States: 1970-1975. t statistics in parenthesis.

7 It is also obvious that other things are not being held equal in these data. For example, income levels and the prices of goods other than religious services that may be substitutes for religion are not and cannot be accounted for. The income data necessary for the study of income effects by religious groups were unavailable during this time period. It is unfortunate that a controlled experiment taking all the items in the individuals' choice sets cannot be conducted. Fortu-

nately, the constancy of the other factors is not asvital for a study of changes in market share as it would be in a more explicit study of the demand for the religious services of a particular church.

8 Since both time series and cross section data were used in the study, the Durbin-Watson statistics normal- ly presented have no useful interpretation. The time series is not long enough for any adequate test for the serial correlation of disturbance terms.

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As can be seen from Table 1, the coefficients of the relative price variables have the expected sign and are significant at the .01 level in both equations. The R 2 levels for the equations are low but not significantly lower than those found in other studies relating economic variables to religious participation. In fact, it is somewhat surprising that the value for R 2 is as high as it is in equation 1 since non-economic factors such as parents religious affiliation and participation would be expected to explain much of the varia- tion in market shares.

There are some additional interesting points to be considered in viewing these results. As one would expect when using the differenced series, the constant term proved to be not significantly different from zero. The model was not used in an effort to solve any statistical irregularities but simply because it provided a more exact ana- logue to the theoretical hypothesis that changes in market shares and relative prices are inversely related over time. Also, the interpretation of the coefficient of the relative price variable is ren- dered more difficult than in a simple time series form because the model measures price effects on each church's market share over time and also measures the price effect on market shares across all churches at a point in time. Therefore, the short-run and long-run consequences of a change in relative price are both measured in the coefficient. This is not a problem for the present

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study, however, since the objective is not the differentiation of short- and long-run price effects.

These results support the hypothesis that market shares do indeed change inversely to changes in relative prices as might be expected from stan- dard microeconomic theory. 9 The fact that the results correspond with the predictions of economic theory is interesting simply because the "good" we are studying is religious services, a product area that has been explored very infre- quently in an analytical sense by economists.

Conduding Remarks

This note supports the recent work that has been done in the area of analyzing religious behavior using economic variables. In fact, the empirical results are at least as strong as those found in either the Sales or Azzi studies relating the two areas. If one is willing to make some strong assumptions, a number of further studies could be attempted along these lines. Studies of the demand for religious services, the microeconomic foundations of the production of these services, and a study of the impfications of market structures in the industry are but a few. This is an interesting area for research if some rather obvious data problems can be overcome and if the veil covering the formerly sacrosanct study of religion can be lifted.

Appendix

The churches used in this study are those for which data were available for the entire six-year period:

1. Baptist, American Convention 2. Brethren, Church of the 3. Church of God (Abrahamic Faith) 4. Church of God (Anderson) 5. Church of the Nazarene 6. Christian Churches (Disciples of Christ)

7. Conservative Congregational Christian Con- ference

8. Evangelical Congregational Church 9. Evangelical Covenant Church of America

10. Friends United Meeting 11. Lutheran: American 12. Lutheran: in America 13. Lutheran: Missouri Synod 14. Mennoite Church General Conference

9 It should be noted that a substitution from one church to another would not be required for this re- suit. A simple drop in the i th church's membership due to a change in relative price could cause the nega-

tire relationship that was discovered. Therefore, at a minimum we are testing for a reaction denoting a shift from consumption of religious services to other goods.

PAUTLER: RELIGION AND PRICES 73

15. Mennonite Church (Scotsdale) 19. Seventh-Day Adventists 16. Methodist, Free 20. Seventh-Day Baptist General Conference 17. Moravian, Northern Province 21. United Church of Christ 18. Reformed Church in America

REFERENCES

[ 1 ] C. Azzi and R. Ehrenberg, "Household Allocation of Time and Church Attendance," Journal of Po- litical Economy, 83, No. 1, February 1975, pp. 27-56.

[2] D. A. Reismann, Adam Smith's Sociological Eco- nomics, New York: Barnes & Noble, 1976.

[3] S. Sales, "Economic Threat as a Determinant of Conversion Rates in Authoritarian and Nonauthor-

[41

[51

itarian Churches," Journal of Personality and So- cialPsychology, 23, 1972, pp. 420-28. A. Smith, The Wealth of Nations, Edwin Cannan, ed., New York: Modern Library, Inc., 1937. U.S. Bureau of the Census, Statistical Abstract

of the United States: 1970-1975, Washington, D.C., 1970-1975.

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Religion and relative prices