IV. Economics of Religion
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1 IV. 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) 2
3 2. Puzzles of Sects 3
4 4
5 Hamas 5
6 Hamas
7 Taliban 7
8 2. Introduction: 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) 10
9 11
10 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] 12
11 13
12 Poverty by choice 14
13 15
14 16
15 Fertility Differential for Ultra-Orthodox Jews TABLE V TOTAL FERTILITY RATES OF ISRAELI SUBPOPULATIONS A. Source: Labour Force Survey Period Full Population Jews Ultra-0rthodox Jews c All other Jews a (0.04) b (0.04) (0.31) (0.04) obs / (0.04) (0.05) (0.30) (0.05) obs Change (0.06) (0.06) (0.44) (0.06) B. Source: Population Registry Period Full Population Jews Christians Muslims / Change
16 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 18
17 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 U( S, R, R. ) 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. 19
18 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), 20 where R is partying (training) and helping out other members.
19 Formally.. Formally: Rational choice approach to religious sects Iannaccone (1992) (1) U i = U (S i, R i, C({R j }) ), where S consumption, R religious activity, C local public good. J R j (2) C({R j }) = R for j=1 to J. J j 1 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. 21
20 Fig 1: Optimal Taxation Through Prohibition Wages Work hours Religious activity 22
21 Rationalizing Sacrifices Imagine heterogeneity in w j (or in marginal utility of R, ). U R j Members would prefer other members to be low wage, since that implies higher R and larger externalities, through U( S, R, R). Low R members are free-riders who it would be efficient to exclude, but w j is unobserved. Note: prohibitions on the intensive margin, sacrifices on the extensive. 23
22 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 Religious education with no market value 24
23 Rationalizing Sacrifices High wage, high C, sacrifice B2 A2 High wage, low C B1 Low wage, high C sacrifice Low wage, low C A1 0 0 Work Hours (H) R+K H1 25
24 26
25 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 27
26 Iannaccone s comparison of sects and churches (2) 28
27 Sects and Churches in National Data 29
28 Iannaccone s comparison of sects and churches 30
29 Testable implications on new data: Education and Fertility by Origin 31
30 Fig 1: Optimal Taxation Through Prohibition, and Fertility Wages Work hours Religious activity & Fertility 32
31 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. 33
32 Total Fertility Rates by Origin: UO Jews Period Sephardi Ashkenazi Native Israeli Parents All Ultra- Orthodox (0.36) (0.32) (0.72) (0.23) obs (0.50) (0.42) (0.54) (0.27) obs Change Difference in difference: (0.62) (0.53) (0.90) (0.35) Sephardi - Ashkenazi 1.78 (0.82) 34
33 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. 35
34 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. 36
35 5. Testable Implications, Radical Islam: Fertility and Schooling Results 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) 37
36 Average Number of Surviving Children Example: Rural Bangladesh - fertility 6 Islamic Other Muslim Age 38
37 Differential Fertility by Sect Membership Six countries Israel UP & Bihar Indonesia Bangladesh 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 39
38 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) (0.009)*** (0.009)*** (0.007)*** (of which) years of Islamic education (0.062) (0.034)** Islamic School (including maktabs) (0.411) (0.271) Muslim (0.113)*** (0.113)*** (0.063)*** Constant (0.218)*** (0.217)*** (0.120)*** Weights x x Observations R-squared
39 Differential Returns to Education by Sect Membership - Six countries Israel UP & Bihar Indonesia Bangladesh Cote D Ivoire Pakistan Secular schooling.094 (.002).116 (.005).122 (.008).097 (.007).175 (.010).132 (.006) Religious schooling (.006) (.013) (.229) (.034) (.070) (.026) 41
40 Mutual Aid and Religiosity in Indonesia (Chen, JPE 2010) 42
41 Income and Pengajian use Pengajian is a religious mutual-aid system 43
42 Income and Madrassah Attendance 44
43 Schooling and Fertility among Amish (L. Choon Wang 10) 45
44 Returns to schooling anyone? Fertility effects? 46
45 Returns to schooling, fertility effects What s wrong with these estimates? 47
46 6. Selection or Incentives? Voluntary sacrifice in an experiment 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 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. 48
47 Details 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* = First stage, players choose s. Then they are sorted into groups in descending order of s. s* averages s in each group. 49
48 Voluntary sacrifice and contribution to public good 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,
49 Exogenous sacrifice and contribution to public good When sacrifice is randomly assigned it has no effect on contributions to public good. 51
50 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: Rich research agenda of Economists of Religion (ASREC 2012) 52
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