I've recently returned to reading some old material on the economics of religion and its upset the household's apple cart. The religious wife finds this stuff most irksome, given the analysis continues to be based on the notion of selfish constrained maximisation. For example, church membership can simply be seen as an investment into after-life utility. We should therefore play probabilities and only start investing when we're old with a suitably high risk of death.

To what extent can this approach be used?

(And, ultimately, to what extent can we maintain the assumption of rational economic man?)

You're not appreciating the nature of the dynamic decision-making, with backwards induction used to construct optimal behaviour over the individual's lifetime. Let us first give an example that assumes certainty. You know you're going to die when you reach 80. The rational forward-thinker will appreciate that once he makes 79 he will switch and invest into the after-life. He knows that there isnt an investment rule: he doesn't have to invest a given level of years in church/Jesus. He just needs to ensure sincerity and, given death is fast approaching, he knows that the 79 year old version of him will achieve that requirement and after-life utility is gained. Given he knows how the 79 year old will behave, it becomes rational for the younger version to avoid the costs associated with religion (until he reaches 79).

There are only two questions with this approach. First, we have to assume that religion is costly. We therefore have to adopt the neoclassical approach to household production (see the stuff by Gary Becker). Religion is costly because of the time investments required, which ensure opportunity costs have to be considered (These costs then increase substantially as fundamentalism increases). Second, we have assumed certainty. Clearly, thats a naive assumption to make. Once we introduce uncertainty we then have to factor in risk aversity. One could, for example, assume that a linear path where the attractiveness of church investment increases with age. However, that certainly would suggest sincerity is going to be a problem. Its much more likely to lead to the discrete choice switch from non-believer to believer at an earlier age (suggesting that young church goers are, ceteris paribus, more risk averse).

The debate is over the nature of bounded rationality. We have two available models, depending on your stance, where we can indicate the constraints on the individual's maximisation behaviour:

(1) The myopic party fiend
This person may endeavour to construct optimal plans, where behaviour is effectively curtailed to ensure the maximisation of after-life utility. However, he/she is undone by the urge to maximise today's fun factor and therefore consumes 'sin products'.

(2) The madhatted god-botherer
This person restricts his/her behaviour such that utility maximisation cannot be achieved. Religion has to be understood as an external influence limiting free will, rather than as an investment in social capital. Alternatively, one can borrow from sociology analysis and argue that religion is an offshoot of our primitive past (limiting rational maximisation behaviour)


Why would I present a report? I'm far from convinced in the applicability of using neoclassical theory on these topics. I'm more interested in the methods to critically analyse the approach, rather than to offer some notion of economic truth.

I can offer reading to aid your understanding of how its used. The main writer in the field is Laurence R. Iannaccone. I look forward to any relevant critique of the nature of his work. I'm interested in the relevance of the approach and the limits of neoclassical theory in explaining social behaviour

I certainly have a problem with the neoclassical approach. However, I’m not sure how you’re referring to provability. Hypothesis testing of the utility maximising framework is available. For example, a standard approach is to test how church attendance and economic variables such as income/wage are related. This cannot be use to ‘prove’ a hypothesis. Economics doesn’t ‘prove’ anything. It merely fails to reject hypothesis. Nevertheless, we do have additional problems here as its difficult to isolate the religion effect.

The costs are perhaps more visible in fundamentalist religions. Iannaccone, for example, focuses on self-sacrifice: ”The personal sacrifices that lie at the heart of most religions are especially problematic. Although some of these sacrifices generate obvious benefits, many others seem aimed at destroying valuable resources”. The neoclassical theorist, via Iannaccone, would explain that these costs are deliberately imposed by the church, and accepted by the flock, as it provides a means to eliminate the moral hazard of free riding. However, the more general analysis is based on Becker’s allocation of time model. One can then separate the costs of religion into two components: donations to the church and the opportunity costs from ‘invested time’ in worship (free riders are then those that are “members who are less active and who contribute smaller sums of money”)

Bounded rationality models, perhaps out of mathematical convenience, tend to suggest that the individual is a split-personality. I’ve offered both extremes, ensuring my personal bias against religion is not hampering my analysis. Thus, with this stuff, we can assume that the religious investment is part of rational decision-making. Alternatively, we can take the other extreme stance and assume it reflects destroyed economic choice. 

One’s stance will be based on the type of theory one follows. For example, you’d have a rather negative attitude if you followed sociology stuff such as Max Weber’s secularisation thesis. In contrast, economic analysis has tended to be much more positive about religious investment/consumption. This has been ensured by the refusal to move away from rational economic man.

It depends on the theory you are reliant on. For example, you could have a negative view based on the notion of rational addiction. There would be no attack on the individual and his/her preferences. Religion consumption just becomes a good where current consumption is based on past behaviour. He/she is still a rational maximiser. Any attack on religion is then only based on the consequences of this individual behaviour for market equilibrium (which becomes unstable and there is increased risk of economic inefficiency). The neoclassical theorist would go as far as using the same buzzword problems: the typical idea being the existence of deadweight loss from monopoly (particularly relevant to countries where a church has market power).

The secularisation thesis is a different kettle of fish. Religion, continuing the neoclassical vocab, becomes an inferior good. Whilst I do not agree with that view, the church-goer will be ridiculed as a clinger-on from a primitive past

There is the issue of whether there is an attempt to deliberately restrict one’s understanding of the theoretical debate. It is of course easy to find theory that supports any hardcore bias on these emotive issues. However, it is possible to undertake a critical appraisal and arrive at a position that is aggressively anti-religion. The theory then ensures a position of ridicule, else the fellow would have to question the appropriateness of his chosen research methodology. It’s not something I can do, given I remain unconvinced over the correct theoretical framework that should be applied.

I translated the secularisation thesis into ‘economics speak’. Given there is an argument that science and enlightenment will eliminate the need for religion, an economist can test the approach using income to proxy for development and concepts such as human capital. The empirical evidence certainly isn’t supportive of the claims encouraged by sociology thought. Demand effects of income and education are limited to “styles of religion” (Iannaccone 1992). However, these demand effects also tends to encourage the economics of religion down the realm of neoclassical constrained maximisation.

The issue is whether the treatment of religion in economics makes it distinct from social science analysis. This is important as, given the sociologist’s secularisation thesis, there is a perception that within social science there is a clear-cut attack on religion. Stark and Bainbridge (1985) sum it up with:

”At least since the Enlightenment, most Western intellectuals have anticipated the death of religion...The most illustrious figures in sociology, anthropology, and psychology have unanimously expressed confidence that their children, or surely their grandchildren, would live to see the dawn of a new era in which, to para phrase Freud, the infantile illusions of religion would be outgrown”

If we are to suggest a distinct ‘economics of religion’ analysis we then have to assess whether it is reliant on the concept of utility maximisation. Moving away from that concept, given it will often mean relaxing the assumption of rationality, will tend to increase the likelihood of a more negative portrayal.

I've never had the good fortune of reading up on islamic economics, so there's nothing I can add on that score. In terms of religion and the economy, how significant would the positive externalities from reducing the consumption of "sin goods" be?