19" A'A‘ l. $33 ,3) ,«gvfinnawm ”1%. f.) sf! )1... 1:11,; W _ us! ..15(vb.171<.i.oni..~o. . . ‘ .I.....;...vvhfim>. was...” v0: :1... [lion—nzblahu» é ‘ . . wig? ”a . .fiwrww .. 3%...m 2%: “and I .v 5 v0 J‘IY‘I Egg? m ‘ LIBRARY 1 (, Michigan State 1° 0 University __f This is to certify that the dissertation entitled THREE ESSAYS ON THE ECONOMICS OF RELIGION AND POLITICS . presented by a, _r Ayman Reda has been accepted towards fulfillment of the requirements for the degree m Economics 2/; we; Major Professor’s Signature 05/03/05 Date MSU is an Affirmative Action/Equal Opportunity Institution PLACE IN RETURN BOX to remove this checkout from your record. To AVOID FINES retum on or before date due. MAY BE RECALLED with earlier due date if requested. DATE DUE DATE DUE DATE DUE APR 1 5? :‘UiU 101 2 11 “ I 2/05 c:/ClRC/Dat00ln.ifdd Vil(TB) + vilB (3) Note:- v,“ & vi“; are the ‘fixed’ preferences of i for each party, A & B”. We have v,- = v,-B - viA, following a uniform distribution given by:- U,- ~U {(-1 +2c)/2fi (I +2c)/2f} From (3), we have: Vt: ViB" ViA < VII(TA) — VI‘I(TB) (3’) From above, (3 ') is the voting rule for individual i. Given (3 '), the share of votes for party A among voters with preferences v,- is given by: Si! = 1/2 — C +f[Vu(TA) — Vil(TB)] Summing across all different S,- 1, and weighing by the number of votes for each particular v,-, S,=1/2—c +f[V,(TA)- V/(TB)] The Political Competition Stage From the distribution stated above, the share of votes for party A among members of denominations I and 2 are as follows: S, = 1/2 — c +f[V,(TA) — V,(TB)] , V,(TA): average of V(TA) in denomination 1. V; (T B): average of V(TB) in denomination 1. S; = 1/2 — c +f[V2(TA) — V2(T3)] , V2(TA): average of V(TA) in denomination 2. V2(T3): average of V( T 3) in denomination 2. '8 We assume that the distribution of positions on the ‘frxed’ policy issues is identical in each denomination. Thus, (qu- vi“) = (Veg - v.34) follow the same distribution. 23 Total share of votes :- S = 1/2 — c +f[V7(TA) — V7(TB)], V7(TA): average of V(TA) in population. Vr(T3): average of V( T 3) in population. The objective of party A is to maximize the probability of winning (to get a majority) :- i.e. to solve : MaxS > 1/2 0r 6 T2t. 27 Furthermore, Y-xl-TA =6] and Y-xz- T ,4 =02. (Note: T A: T 3 in equilibrium). This means that in the final outcome of the game, adherents of denomination I will exercise more private consumption than those of denomination 2, (C I > C 2) However, although denominations do induce their members to be ‘liberal ' or ‘conservative’ regarding the political and economic issues, in the fiamework of our model, they end up paying the same tax rate T A = T 322, which is the case in real life since governments impose taxes unifome (at least the head tax) on all adherents of denominations. Also, by law, governments cannot discriminate among denominations in the imposition and collection of taxes. The question may still arise, that if the final tax rate is the same regardless of the winning party, why induce members to favor different politico-economic positions? We have noted that the objective of the denomination in this case directs their behavior. The party positions have no influence on the religious decisions of denominations. Also, although the tax rate is the same, it is however influenced by the religious positions of both denominations as given by the following result: TB’=T,,* = b(Y-)O whereX = tax, + (1- aux, Thus, the final tax rate is influenced by both x I and x2. Furthermore, it is influenced by a). Any deviation by a denomination from their Nash equilibrium position will cause the 22 We should note that for this result to hold in the framework of the example above, a few assumptions should be made regarding the parameters. In denominations I & 2, after the religious competition stage is over, the adherents are left with [Y-xJ and [Y-le respectively. After paying the same taxes, what remain fiom their incomes are [Y- Xl-(Y-ID b] and [Y- xg-(Y-AO b] respectively. For the budget constraints of both types of adherents to be satisfied, we must have: [Y- xJ-(Y-AO b]30 for j=l, 2. This means that we have to make some assumptions regarding the range of (ar), (refer to footnote 13, 20), or range of values that (b) can have. But these assumptions do not change the results or propositions that the paper produces. 28 other denomination to gather more adherents and also have their optimal policy be more influential in the final outcome of the game. We can now state a further result obtained from the proof above. Proposition 1’ Liberal adherents are more lavish in private consumption than conservative adherents. Also, given that T 1* >T2*, from Z,- = TiN, it follows that Z ,‘> 2;. Corollary Liberal denominations favor more government spending than conservative denominations”. Thus, we can reasonably say that liberal denominations favor ‘bigger' governments and conservative denominations favor ‘smaller ' governments”. This corollary is insightful, since in real politics, we observe that liberal denominations are more closely affiliated with the Democratic Party and are thus proponents of ‘bigger’ governments, while the conservative denominations are more closely affiliated with the Republican Party and are thus proponents of ‘smaller’ governments. These hold: T A' = T 3* (convergence) T2*< T]. x, *< x 2‘ (equidistant) Cl.) 02* Z, *> 22* 23 See footnote 29, pp. 52. 24 See Empirical Evidence (ii), pp.52. 29 1.5b. Benevolent Denominations and Policy-Seeking or Ideological Parties In this section, we alter one main assumption of the previous case and that is election- seeking parties. In this case, we model the parties as having a specific policy preference. In other words, the parties have a particular tax rate or govermnent spending level that they prefer prior to the start of the game. Ideology, party interests or candidate interests may drive this policy preference. This situation is of important historical and contemporary value, since we do witness that some political parties do have specific ideological positions on many political and economic issues. A political party may be driven by an ideology very different from that of the denominations. We can have an instance where the party’s ideology, supports conservative economic policies or ‘small’ governments and this position may happen to coincide with the interests of religious denominations on those same issues”. Also, we may have situations where some business interests influence the preferences of the politicians and cause them to favor particular policies at given periods in time. We are thus departing from a case of neutral policy preference towards a specific policy bias. Hence, our assumption in this case is that parties have prior policy preferences for some unspecified reason and they hope to adopt that policy as best as they can. But the society is still controlled by the religious institution in the first stages, in the same way as we had in the previous case. In other words, even with the ‘ideology’ of the parties, the citizens still belong to one of the two denominations and conform to the teachings of that denomination. 25 Parties may have unique ideological orientations, such as Marxist, Socialist, Labor, Social Democrat or otherwise, and they happen to coincide with the preferences of religious denominations on specific issues. 30 Voting Stage Voters vote for the platform that maximizes their politico-economic utility, according to: Vi: viB'viA < VII(TA)_VII(TB) (3,) Political Competition Stage This stage is where the new assumption affects the structure of the model. Each party now chooses its policy in order to maximize the following objective:- Max —(T,,- Tr“)? {Tit} where T [I ideal or ideological position of party. (We note here that the values of possible T 1: are assumed in such a way that the budget constraint is satisfied in general). The parties are ‘dictatorial’ in the sense that they choose their ideological positions regardless of the behavior of all other players in the game. Roemer (2001 , 81) labels such a behavior as “dogmatic”. The parties do not care about winning and they would “brook no compromise” (Roemer 2001, 81). Whether their policy is chosen through elections does not affect their decision-making. This may seem strange, but we are making such assumptions in order to study a wide variety of scenarios. Therefore from 17.0. C, T A. = T AA TBa = TBA Politico-economic equilibrium: Each party chooses its ideal politico-economic position. No convergence occurs. Transition Stage: This stage stays the same as before. 31 Religioug Competition Stage Since denominations are benevolent, and Since we are considering an indirect, religion-driven political position, the result is similar as in the previous case. The denominations locate equidistantly as follows : Religious Equilibrium x1. = t/2 x; = 1/2 + r/2 The final tax rates are thus equal to the prior ideological positions of the parties. Depending on the positions of these tax rates, the winner of the election will be determined. Adherents of denomination I (liberal) will vote for the party with the higher ‘ideal’ tax rate and the adherents of denomination 2 (conservative) will vote for the party with the lower ‘ideal’ tax rate. But the voting process is also influenced by the distribution of the ‘fixed’ policy preferences, vi: v,-B - v“. This means that if coincidentally, the positions of the parties are located equidistantly in the same way as that of the denomination, then this ‘bias’ distribution will determine the winner of the elections. If party A wins the elections (assuming T A ‘< T33, then denomination 2 (conservative) is better off since the tax rate implemented by A is closer to the preferred tax rate for conservative believers than liberal ones. The liberal denomination is better off if B wins the elections. In this scenario, we observe that the ‘dictatorial’ mode of political rule adopted by parties (or government), restricts the indirect influence that denominations had in case 5a. In that case, we had as final policies: TA‘ 2 [70,40 32 TI; 2 b(Y-X) where, X = cox]. + (1- co)x2‘. The denominations positions were represented in the decisions of the parties. In this case, the parties exclude the positions of denominations in choosing the policy level. We should note that the parties’ ideological positions are determined exogenously. The denominations therefore have no part in ‘constructing’ government policies. The denominations however can still influence the result of the election through their adherents’ voting. The denominations can affect the probability of the winning party position. If party A’s position is to the far right while B is closer to the middle, then more will vote for B and thus B wins. If T ,4 I, T 3* are located equidistantly, then denominations have even less influence since the winner is now determined by v,. Knowing that they did not play a role in forming the party positions, the denominations can only hope to ask their adherents to vote for the policy that is closer to their ideal. This also depends on the fact that the denominations are constrained to being benevolent. If they had more flexible objectives or ‘doctrine’, then they may be in a better position to exercise influence over government policies. In short, denominations have little influence over government policy positions and they are ‘constrained’ by the obligation to be benevolent. Proposition ;: If parties become ‘ideologically dictatorial ', the ability of benevolent religious denominations to influence the political and economic policies (indirectly) is greatly reduced. The political and economic interests of the denominations is to a great extent determined by forces beyond their control. 33 This doesn’t mean that denominations will necessarily be worse off under this scenario than the previous one. It may well be that due to the ideological positions of parties and the ‘popularity’ distributions for the parties, a denomination may end up better off than in the previous scenario. But the main issue is that the likelihood of this happening is to a great extent beyond the realm of the denomination’s influence. For example, let us have a situation as in figure 1.3: - . I . I . I I . . T ,4 T 2 M T ,3 T, Figure 1.3 : Policy-Seeking or Ideological Parties In the situation in figure 1.3, we have the two denominations locating equidistantly on the religious spectrum with the corresponding positions on the tax rate spectrum. The parties locate according to their ideological positions. The conservative denomination is closer to party A’s position and therefore all the adherents of denomination 2 will vote for A because of the conformity requirement. Individuals do have an ideal tax preference given by T," = b(Y-a,-) , for all i. But the assumption of conformity requires that each adherent ‘replace’ his/her political preferences with that of the denomination. As a result, they choose their voting option based on the denomination’s preference. Corollary If the parties' positions are dijferent, we would now have a ‘ liberal’ and a ‘conservative ’ party. Liberal denominations tend to support ‘Iiberal ' parties and . . . . . . . . 26 conservative denominations wrll tend to support conservative parties . 26 See Empirical Evidence (iii), pp. 56. 34 Regardless of the degree of conservatism of the party, the members of the conservative denomination always vote for that party. This argument also holds for the liberal party and denomination. We should note that in this scenario, parties have equal number of votes corresponding to the locations of the denominations. If one party has more ‘popularity’ than another, it wins the elections. If for example A wins, the conservative denomination is better off, since the position that will be implemented is closer to the denomination’s preferred level than it was in the first scenario, where the parties converged to the midpoint. If however B wins, then the conservative denomination is worse off. These hold: TA. = TAA T; = T,“ TAA< TBA , TAe< TI; T2r< Tia x ,*< x; (equidistant) Cl.) 02* Z, a) 22. 1.5c. ‘Dictatorial’ Denominations and Election-Seeking Parties In this scenario, we change the objectives and intentions of denominations from benevolence or democratic religious representation, to an ‘authoritarian’, ‘dictatorial’ or ‘dogmatic’ religious authority. In other words, the denomination now has a specific, prior religious position that it seeks to implement. This position is determined exogenously from an unspecified doctrine. The denomination ‘bypasses’ the preferences of believers 35 and seeks a specific religious investment level. It chooses the position on the ‘religious investment ' spectrum that would correspond to its preferred level. It is thus ‘dictating’ its preferred doctrine to its members. It is also an example of indoctrination by the denominational authorities. Parties seek winning the elections only. Voting Stage: Same as in case 1.5a. Political Competition SLagg Politico-economic equilibrium : We follow the same procedure as in 1.5a and the result is as follows : TA I = b(Y-A9 TB. = b(Y')O The parties’ political positions converge. Transition Stagg Same as before. Religious Competition Stage Denominations seek to : A 2 Max —(x,- x, ) {)9} The denomination seeks to implement xf. To achieve this objective, it would choose x, to maximize the above objective. F.0.C. x,’= x,“ t A 3‘72 =x2 36 Religious @uilibrium Denominations choose the positions on the ‘religious investment’ spectrum corresponding to their given ideal positions. Proposition 3: If denominations are ‘dictatorial ', they will impose on adherents a level of ‘religious investment ' corresponding to the preferred level by the religious authority. Corollag: If denominations are dictatorial, the religious authorities do not sincerely represent the preferences of adherents. A liberal denomination and a conservative denomination would not emerge out of a sincere representation of religious preferences, but out of probable diflerences between the doctrines and preferences of religious authorities. Therefore, in this scenario, any apparent difference between adherents of different denominations in terms of preferred tax rate, government spending or size of government, will be entirely due to the specific preferences of the religious authorities. Adherents ‘blindly’ follow the teachings of the denomination. Some adherents will find their ideal position close to the denomination’s ideal position, but in terms of the total welfare of adherents, it will generally be less than if the denominations were benevolent. Proposition 3’: Under a ‘dictatorial’ religious authority, the religious welfare of adherents is suboptimal. By being benevolent, the denomination is minimizing the total religious transportation costs of all adherents and that gives the Pareto optimal result. Any other objective is suboptimal. From standard linear city models, we know that the locations that achieve a 37 social optimum correspond to ‘A and 3A on a scale of O to 1, as in the case with benevolent denominations. Any other set of locations will be suboptimal. This may not be the case if the denomination’s preferences coincide with the optimal level. But that is of small probability. These hold: T A. = T 3* (convergence) T2s< T,’ xIA< sz, x,'< x; Cla> 62‘ 21..) 22.. 1.5d. ‘Dictatorial’ Denominations and Policy-Seeking Parties This scenario differs from the previous one with regard to the party objectives. We now have denominations that seek to impose their doctrine, and parties that seek to dictate their ideology or interests. This is probably the worst situation that may face the believers or citizens in a society, from their point of view. On the one hand, the citizens’ religious views are not taken into consideration, and on the other hand, they are forced or coerced into accepting government policies that they may not agree with. Some believers may find themselves fortunate to have similar preferences to that of the religious authority and we do find this in authoritarian societies, but the majority of believers will feel alienated or disregarded. Also, citizens would feel that parties ignore their political and economic preferences and instead try to impose a single view on them. 38 The Voting Slagg Citizens ‘vote’ for the party platform that is closer to the policy preferred by their religious authorities”. When the citizens are now part of a specific denomination, the religious teachings of that denomination will induce them to favor particular economic and political policies. Political Competition Stage Since parties are ‘dictatorial’, they seek to impose their preferred policy. This is similar to case 1.5b. Max —(T,, -T,,")2 {Tit} The solution is : T AI. = T AA C A T ,3 = T B Politico-economic equilibrium: Each party chooses its ideal politico-economic position. No convergence occurs. Transition Stage This stage stays the same as before. Religious Competition Stggg Denominations seek to : Max —(x,-- x,)2 {xi} The denomination seeks to implement xjA. To achieve this objective, it would choose x]- to maximize the above objective. 27 The word vote here seems strange because the citizens are not choosing their preferences but that of others. 39 F..0.C x,*= x,A t A x2 = x2 From our example, the tax rates that the adherents are directed to follow are: T1. = WY" 351’) T; = b(Y- 3‘2). Proposition 4 With ‘dictatorial' religious authorities, the ‘ religion ’ that the adherents subscribe to is primarily determined by the religious preferences of religious authorities. Proposition 4’ Denominations with strict objectives and intentions are less capable of increasing their number of followers than denominations with more flexible objectives and intentions. A benevolent denomination can continuously change the number of followers it has as circumstances change, while a ‘dogmatic’ denomination is always restricted to a strict doctrine. Corollag The decisions of the religious authorities and the party officials are completely independent. In addition to the fact that the outcome is not socially optimal, any distinctively liberal or conservative denomination is completely due to the religious preferences of the religious authorities. Likewise, any distinctively liberal or conservative party is fully due to the politico-economic preferences of the respective parties. 40 We can therefore say that the adherents would ‘vote’ for the tax rate that their religious authority prefers. If the religious authority prefers high government spending, they would choose high government spending and if the religious authority favors ‘small’ governments, they would side with ‘small’ governments. This kind of ‘blind’ following of religious authority is not uncommon in the history of world religions. And even when they submit to these teachings, they may end up facing different political and economic policies that are driven by another authority with its own particular interests. However, one should note that the religious and party authorities are also strictly following given aims and objectives. A liberal denomination may find out that its given doctrine is unpopular among the adherent population. But the structure of its objectives forces it to maintain that position even if it ends up gathering fewer followers. There are many instances in history where denominations or sects have preferred to stick to their teachings and have refused to alter their rules because they believe it would be a violation of doctrine. These denominations have remained static, while those whose objectives are much more flexible can adjust their doctrine over time as circumstances change and thus assume a more dynamic course. Likewise, parties cannot adjust their preferred policies to get more votes and unless their ideology changes over time, they may end up losing the elections continuously. . at It: It: a a II: at Given all the above, we can have many values for x, , x2 , T, , T2 , c, . C2 , TA , C i # T3 , Z, and 22 . These hold: TA: = T; t A TB = TB TAA< TBA . Tnt< TB. 41 T2*< Tl. xIA< xza, x,'< x2. Cl.) 02* 2]..) Z,’ 1.5e. Legitimacy and Endorsement In the cases we have examined so far, the religious authorities have specific religious Objectives. These objectives can range fiom a sincere representation of believers’ religious preferences to an ‘authoritarian’ implementation of a particular preference held by the religious authorities. The denomination seeks to implement its religious objective regardless of the actions of political parties. That is, the position chosen by the denominations is not influenced by the positions chosen by the parties. These religious positions chosen by the denominations lead indirectly to political and economic preferences for the adherents. But this doesn’t mean that the denominations have no interest in politics or economics. A denomination may choose a level of ‘religious investment’ because this level may lead to a particular tax rate or government spending level. But in the structure we used in our cases above, there is a difference between having a specific religious objective and a specific politico-economic objective. We have seen that if a denomination has a level of ‘religious investment’ or religiosity that it prefers, it would implement that level in a dictatorial manner. The denomination moves before the parties and therefore would just easily implement that particular level of ‘religious investrnent’. But if the denomination has a politico-economic interest or objective, such as a specific tax rate, it wouldn’t be able to implement it exactly as it is, 42 because parties determine the final tax rate in the political competition stage. This is the structure we have employed so far in this paper. In this section, we will consider a slightly different set of assumptions, but with Significant consequences on the results. Here, we assume that the religious authorities have a direct interest in politics and economics. This means that the religious authorities seek a specific type or level of politico-economic policy. This preference may be due to some ‘secular’ interest on the part of religious authorities in the form of ‘rent-seeking’, personal agendas or some alliance agreed upon between religious leaders and party officials. We call it direct simply because the objective will be defined in the form of politico-economic policy rather than religious doctrine. The main difference in this scenario is that denominations choose by endorsement. This means that a denomination supports one of the two positions chosen by the parties. It supports the position closer to its ideal politico-economic preference. For example, the liberal denomination would endorse the position of a liberal party and in doing so, directs its adherents to vote for that specific party. This method of endorsement is common in politics. The endorsement serves as a form of legitimacy provided by the denomination to the party. This legitimacy is a certificate of support from the religious authorities to the party and it materializes in the form of voting. We assume that parties are ideological. In his forthcoming book that studies religious liberty in the framework of rational choice theory, Gill argues that legitimacy is a relatively inexpensive method for governments to attain and maintain office. Gill (1998) remarks that this demand for legitimacy by government creates a potential for agreement between policymakers and denominations, since, “religion tends 43 to be the primary producer of societal norms and values” (Gill 1998, 52-53). Gill goes on to examine legitimacy as it plays out in the area of government regulation of religion. In this section, we seek to formally model legitimacy and endorsement of parties by denominations and how this structure affects the propositions obtained so far in this model. VotingStage The adherents vote in accordance with the directions or teachings given by the religious authorities. They vote for the party that is endorsed by their religious leaders. Political Competition Stage Since parties are ideological, they solve the same problem as in cases 1.5b and 1.5d. Max —(T,,- n“)? {Tit} Therefore from F. 0. C, T; = T; T; = TBA (We let TA’ - (TI;- If)? where If corresponds to the preferred tax rate of denomination j. Suppose we have the following situation below:- T 2 TA T B T [A Figure 1.4: Religious Endorsement of Parties (a) In the situation of figure 1.4, the two parties locate according to their ideal positions. We have a liberal (B) and a conservative (A) party”. The conservative denomination, 2 prefers the position of A to B. It therefore would endorse A. If the conservative denomination endorses A, it would seek to choose its religious position such that it maximizes the probability that A wins the elections. After all, the voters are in the first place believers and take the orders of their religious leaders seriously. Religious Competition The objective of the conservative denomination is therefore to maximize the probability that the conservative party wins. The same goes for the liberal party and 28 These positions could be derived from a benevolent, sincere representation of adherent preferences, or could be due to some ‘dogmatic’ stance by the authorities. The origin of the denomination’s position is not important in this particular scenario. What is important is that denominations have distinct preferences. 45 denomination. The situation in practical terms is where a liberal party would seek a coalition with the liberal denomination in which the party gets the votes (legitimacy) it needs and the denomination has a party that is more attentive to its needs than the other (conservative) party. Conservative Denomination, 2: Max (Probability that A wins) {12} Liberal Denomination, I .' Max (Probability that B wins) {x,} Religious Equilibrium The positions of both denominations will converge to .the middle (or median) of the ‘religious investment’ spectrum. Proof After each denomination has decided which party to endorse or legitimize, they are now interested as per the ‘coalition agreement’, in gathering as many voters as they can for that party. The only tool the denominations have at hand is the religious variable. By altering this position, they can influence the final votes. If the liberal denomination wants the liberal party to win, it would simply seek to maximize the probability that that party wins. More specifically, the denomination would seek to maximize the number of adherents it has. This is because if all adherents are conforming completely to the teachings and rules of the denomination, by maximizing the number of adherents, they are essentially maximizing the number of those who would vote for the liberal party. To maximize the number of adherents, the liberal denomination would try to move its religious position to the right to get more votes for the liberal denomination. As a 46 rational, strategic response, the conservative denomination would move to the left. The Nash equilibrium is at the median or midpoint of the religious spectrum. Therefore, the denominations would converge to the midpoint on the religious spectrum and both sets of adherents are now essentially facing the same religious rules or standards. There is a tendency towards increased moderation by both denominations in the hope of attracting more adherents. They are aiming for a larger audience. But they face a trade-off. By trying to increase adherents for the sake of a particular politico- economic objective, they are ‘sacrificing’ religion. They try to achieve their political- economic objectives at the expense of their religious teachings and doctrine. Mathematically, the denominations maximize the number of adherents as follows: Conservative Denomination: Max (co) > 1/2 {x2} Liberal Denomination: Max (I-co) > 1/2 {x,} Nash Equilibrium (convergence to the middle): to = 1/2. Proposition 5 In a framework of endorsement strategies, the liberal denomination will m to endorse the position of the liberal denomination and the conservative denomination {211$ to endorse the position of the conservative party. If the denominations are located symmetrically on the tax rate spectrum, then the liberal denomination will M endorse the liberal party and the conservative denomination will glw_ay§ endorse the conservative party. We can have situations were a liberal denomination endorses a party with relatively opposing viewpoints, as shown below: 47 T, T; T; T, Figure 1.5: Religious Endorsement of Parties (b) In the situation above, party A is extremely conservative to the extent that it is Optimal for the conservative denomination, 2, to endorse the liberal party (B) instead. In this case, party B is certain to win. Since we can have many possibilities, we can restrict ourselves to cases where the denominations endorse parties of similar viewpoints or ideological orientations, thus the term ‘tend’. However, if we allow parties to react strategically to this possibility (which we haven’t done here because parties are ‘dogrnatic’), then they would move their positions so as to get at least one endorsement. This means A moves to the right until B cannot get the endorsement of denomination 2 anymore. B would move to the left and stop at the point beyond which it loses its endorsement from denomination I . Also, if we give complete fi'eedom to both sides such that they can react strategically to any movement by any other side, then we will have both denominations and parties locating at the midpoint. Proposition 5’ As denominations become directly interested in political and economic policies, their positions on the religious spectrum will converge to the median or midpoint. This is because they are interested primarily in a certain political objective, and to achieve it through endorsement, they tend to ‘moderate’ their religious positions so as to increase support for that endorsed policy. This is where politics drives religion. 48 C_0L0_113_1Y If denominations are interested in political rather than religious objectives, they will mil to ‘sacrifice’ the religious interests of their adherents to achieve their ‘personal ' political-economic agendas. Also, the religious diflerentiation between denominations is reduced until eventually there is no notable difference between them. We will have a liberal and a conservative party, but there are no longer a liberal and a conservative denomination. Religion and believers in general, are the ‘losers’. As we have seen, any non- equidistant location of religious positions is sub-optimal. As a result, the location in this scenario is sub-optimal. We have the following situation: T; = 2:,“ TB" = T,“ TAA< TBA ’ TA*< TB. T2A< T,A, T,* = T2*[=b(Y-)O (in the example we have)] t * x, = x2 01:02 A A t * Z] > 22 . Z1 =22 This scenario has raised a very important point and that is about objectives and intentions. We have seen that with strict religious objectives, there is a notable differentiation between denominations in their religious positions. With politico- economic objectives, this differentiation gradually disappears. The explanation that the 49 model proposes is that of intentions. If a denomination is Sincerely representing the preferences of their adherents, it will assume a distinct religious identity. But if the denominations are instead interested in achieving some political objective through a coalition with parties, they risk losing this religious identity. The coalition and endorsement that occurs, makes denomination solely interested in the election outcome and not the religious stance of its members. Political parties exploit the power that religious institutions have by asking for their support. And in providing this support, the denominations lose in religious terms. This situation is not uncommon in history. We have witnessed instances where denominations have worked hard for certain parties or candidates to win elections or gain popular support. Denominations alter religious teachings in order to attract more adherents who are later ordered to vote for the endorsed politician. One can even say that politics may have benefited from this strategy in trying to reduce the power that religious institutions have. Providing material or secular incentives and rewards to religious leaders to gain their endorsement can do this. If the religious leaders become ‘tempted’ by these rewards, they will accept to garner support for that politician. They do this by simply changing their teachings to attract more followers. This can be in the form of more flexible rules, less spiritual requirements or less demand for charity, if it is a conservative denomination. A liberal denomination would in contrast increase the strictness of the rules and require more from their adherents. As a result, this ‘strategic change in religion’ by the two denominations leads to increased similarity between them. 50 1.6 Empirical Evidence In this section, we survey some of the empirical work that has been done on denominations’ religious and political behavior in order to assess the practical validity of our propositions. This section will provide an overview of empirical studies that relate to the assumptions and results in this paper. (i)- Relig'mus Preferences: With regards to the assumptions made in the model regarding religiosity and religious investment, we labeled adherents who prefer low religiosity levels as liberal while those who prefer high religiosity levels as conservative. In his survey of the literature on Economics of Religion, Iannaccone (1998) remarks that most measures of religious involvement such as voluntary contributions or participation in religious activities are positively related to the level of religiosity in the denomination. He states, “the members of liberal Protestant denominations contribute a relatively small proportion of their income to churches (around 1.5 percent), whereas the members of conservative Protestant denominations, such as the Southern Baptists and the Assemblies of God, contribute significantly more (between 2 percent and 4 percent), and Mormon contributions average 6 percent of income” (Iannaccone 1998). Furthermore, Iannaccone (1998) states that religious involvement in terms of, “rates of church attendance, follow a similar pattern, with liberal Protestant denominations ranking lowest, conservative Protestants attending more, and sect members, such as Mormons and Jehovah’s Witnesses, attending still more (Dean Hoge and Fennggang Yang 1994; Iannaccone 1992, 1994)” (Iannaccone 1998). In a statistical survey on the determinants of religious participation, Iannaccone comments that, “members of conservative and sectarian denominations attend and give 51 much more than members of liberal denominations even after controlling for socioeconomic differences”. (Iannaccone 1998) Hunter (1991) studies these two ‘groups’, liberal and conservative, under the titles progressivism and orthodoxy respectively. He states that, “it nearly goes without saying that those who embrace the orthodox impulse are almost always cultural conservatives, while those who embrace progressivist moral assumptions tend toward a liberal or libertarian social agenda” (Hunter 1991, pp.46). Therefore, our assumption regarding religious preferences as locating progressively under two distinct banners, liberal and conservative, is consistent with a substantial part of the theoretical and empirical literature on religion and politics. (ii)- Rflion and Economics: In this section, we review some views regarding the relationship of religion to economics. We recall that the model derives a relationship between religious preferences and economic preferences. In particular, individuals with liberal religious preferences will be induced by the denomination to favor liberal economic policies in the form of higher taxes, more government spending and ‘bigger’ governments. Such adherents will prefer more government spending on programs such as social security, health care and public education. In contrast, the model postulates that conservative adherents will favor low taxes, low spending on welfare projects and less government intervention in their economic lives. 2")We argue that these views are strictly a result of the budgetary choices faced by believers when trying to allocate their resources between religious spending and secular obligations. Strict believers want to 29 This does not mean that conservative believers are opposed to welfare programs. They are specifically opposed to government provision of these services using tax revenue. This means they prefer that such spending be done by their religious institutions using religious donations of adherents. 52 give less to the ‘secular’ government in order that they can give more to their religious authorities. But the question that arises is whether we do observe these tendencies in real life. Do liberal religious views translate into liberal economic views in the real world? Do conservatives reject socialist policies by governments? Do they favor a laissez-faire approach by governments? The answer is that there are mixed views and results on these issues. Some authors support the propositions above and some provide evidence to disprove them. One should note however that our model is explaining these phenomena using a single dimension of analysis, namely religiosity. Other authors explain their different conclusions using alternative dimensions. Two prominent sociologists of religion, Wuthnow (1988) and Hunter (1991), hold the position that religious prefer'ences affect the views of believers and denominations on economic issues. According to Davis and Robinson (1996), who object to the conclusions of Wuthnow (1988) and Hunter (1991), state that, “according to Wuthnow (pp. 132, 219- 23, 239), religious liberals take politically liberal positions on a wide variety of contemporary issues, including .. ., and economic justice, while religious conservatives take politically conservative stances”. They state that, Wuthnow (1988, p.114) sees religiously conservative “special purpose groups” such as the Moral Majority and the Christian Coalition as having arisen to combat the growing role of government in guaranteeing equal rights for women and minority groups and in providing welfare and other forms of assistance to the poor. Wuthnow (p. 248) notes that religiously conservative leaders, such as evangelical economist George Gilder, Moral Majority founder Jerry Falwell, and Christian Coalition founder Pat Robertson, have voiced strong opposition to redistributional efforts by the government. Through analysis of a sample of Americans interviewed in 1984, Wuthnow (pp. 219- 53 23) finds that religious conservatives are more opposed than religious liberals to government spending on social programs. (Davis and Robinson, 1996) Hunter (1991 , pp.111) argues that the notion of freedom among orthodox believers also refers to freedom in “economic self-determinations” and as a result, these believers are proponents of “‘free’ enterprise”. He argues that evangelicals “trace the [above] relationship to the Old Testament land laws that linked private property to the freedom from state coercion, especially from taxation”. (Hunter 1991, pp.111) Hunter (1991, pp.96-97) observes in a 1987 study of denominational leaders that orthodox religious leaders prefer economic growth as a way of reducing poverty and also tend to reject using redistribution of wealth to solve the problem. As such, Wuthnow and Hunter are of the view that religious preferences affect the economic preferences of believers and religious authorities. Our model also arrives at similar conclusions on these issues. The explanations presented for this pattern are however different. Wuthnow and Hunter explain these attitudes as a result of particular religious doctrines held by the different denomination members. Hunter (1991, pp.49) argues that, “the culture war emerges over fundamentally different conceptions of moral authority, over different ideas and beliefs about truth, the good, obligation to one another”. Thus, they explain this behavior in a Weberian framework. Although our model explains the economic preference as an expression of religious preferences, it specifically uses the budget constraint and allocation of resources as the key concepts. The reason that a conservative prefers low government spending or intervention is not because his/her doctrine praises the laws of capitalism and free market. It is because the level of commitment or involvement or strictness the believer prefers ‘forces’ the believer to give 54 a substantial amount of his/her resources to the denomination and as such, he/she are inclined to favor giving less to the ‘secular’ government. This relationship is due to the impact of the budget constraint on all believers. The economic reality puts certain restrictions on the economic preferences of individuals. Therefore, both the religious doctrine and the economic reality facing individuals, determine their political, economic and religious preferences. As we noted before, some studies have obtained very different results and observations regarding the effect of religion on economic attitudes. Davis and Robinson (1996), in a statistical survey, show that orthodox adherents do not necessarily hold conservative economic viewpoints. They state that, “the orthodox are more liberal on issues of economic inequality” (Davis and Robinson, 1996). But the reason for this observation according to them, is “[that] the tendency of the religiously orthodox to draw adherents from disadvantaged groups makes them more liberal on economic issues”(Davis and Robinson, 1996). In our model, income inequality is not present and therefore we can ignore this effect. Our result holds in a situation of income equality. If a majority of conservatives are poor, this means that they care about welfare programs and thus they would support more government intervention. They are unable to provide to the denomination their preferred levels of religious investments. Also, Davis and Robinson (1996) do find that orthodox adherents believe the government welfare spending is too high. As such, even their results don’t support their hypothesis fully. Furthermore, there are no final conclusions on this matter and different researchers have differing views. 55 (iii)— Religion and Politics: In this section, we review the empirical work done on the political positions and affiliations of denominations and adherents in the area of US politics. In our model, and specifically under the sections that deal with ideological parties, we argued that liberal denominations tend to support liberal parties, while conservative denominations tend to support conservative parties. We also showed the conditions under which a denomination may endorse the position of a party with a ‘conflicting’ ideology (see section 1.5e). In his study of religion and politics in the US, Layman (1997) states that, “ there is already a good deal of evidence that political activists arid voters with orthodox beliefs and affiliations tend to support the Republican Party while the Democratic Party draws its activists and voters disproportionately from the ranks of religious liberals and secularists (Green, Guth, and Fraser 1991; Green et al. 1996; Guth and Green 1986, 1987; Kellstedt, Smidt, and Kellstedt 1991; Miller and Wattenberg 1984; Rozell and Wilcox 1995; Wilcox 1992)”. Laymen (1997) states that, “as the cultural tensions between America’s religious and secular populations grow, the political impact of religious commitment also should grow, with strongly committed individuals becoming more Republican relative to their less religious counterparts”. Furthermore, Layman (1997) states, “highly religious individuals have consistently been more likely than their religious counterparts to identify with the GOP, ...”. To explain the changing political attitudes of Liberal Protestants from supporting the Republican Party to supporting the Democratic Party, Leege (1993) cites the decline in church attendance by liberal Protestants as a possible cause. This means that if attendance falls, in the fi'amework of our model, the religiosity of adherents may have fallen. The 56 liberal Protestants are more liberal than before, and as such they are more likely to vote for the Democratic Party than the Republican Party. These results indicate that liberal denominations do indeed endorse liberal party positions (Democratic), while conservative denominations endorse conservative party policies (Republican). 1.7 Conclusion So far, we have shown that with a budget constraint facing individuals, denominations that act in the interests of their adherents will differentiate themselves from other denominations and as a result, will induce their members to favor particular political and economic policies. The budget constraint facing adherents is also facing the denomination since all it does is sincerely represent the interests of its members. But if the denominations are interested in some other objective such as maximizing the number of adherents, they will converge to the same position on the religious spectrum and choose the same optimal ‘religious investment’ level. In that case, no differentiation occurs and therefore both denominations induce their adherents to favor the same political and economic policies. There is no difference in preferred tax rates, private consumption and preferred government size. We can deduce from these observations, that if denominations care less and less about their adherents’ preferences, any notable differentiation between denominations and among members of different denominations will vanish gradually. A more ambitious deduction is that with a decreasing benevolence by denominational authorities, there would be corresponding decreasing differences between denominations until eventually denominations lose their unique identities and 57 their impact on the domain of politics and economics. With more benevolence come more differentiation and more power in influencing political and economic policies. This model has sought to explain the reason why liberal denominations favor higher tax rates, more government spending and ‘bigger’ governments, while conservative denominations favor lower tax rates, less government spending and ‘smaller’ governments. We have shown that with adherents facing a budget constraint, if we approximate religiosity in terms of ‘religious investment’, benevolent denominations who preach low levels of religious investment and low religiosity, will induce their believers to favor high taxes, government spending and ‘bigger’ governments. The opposite holds for conservative denominations. These factors together influence the specific party that a denomination decides to endorse. The model has sought to explain a real world phenomenon using simple concepts. Religious preferences, budget constraints, and denominational objectives explain the different religious, economic and political decisions taken by all players in the society. 58 Chapter 2 Religious Charities and Government Funding 2.1 Introduction On 29th January, 2001, the White House Office of Faith-Based and Community Initiatives was established with the declared objective of creating a partnership with faith- based agencies in order to achieve common goals in the field of social service provision. This development raised severe controversy with regards to its legality under the laws of the Constitution. It also initiated an extensive debate from all interested parties on the effectiveness of faith-based social service providers in relation to other social service providers, and whether they possess unique advantages that warrant any special treatment from the government. This debate will continue and even intensify as the program progresses. Religious denominations and their affiliated faith-based agencies will be in continuous competition against each other to obtain government funding in order to achieve their specific interests. Political parties now have a useful tool that they can refer to in times of elections when they are in need of legitimacy or endorsements. It seems therefore that without careful examination, such an initiative may not necessarily be a productive partnership or lead to the desired common goals that many would expect. The purpose of this paper is to examine some aspects of the relationship between religious nonprofits and the government. The paper presents an economic model that describes this relationship in order to give us an insight into the different motives of these institutions and the outcomes that arise as a result of their interaction. We study this relationship by investigating the impact of government funding on religious charities and 59 on religion in the society as a whole. We model a government that awards funds to religious charities or denominations30 so that these funds are used for the production and distribution of a social good or service. We provide a rationale for why the government chooses to award the funds to a religious charity in particular. A unique nature of religious charities allows them to have an advantage over secular nonprofits in the production of the social good. Based on this formulation, the government decides which religious denomination or denominations to award the funds to according to the specified government objective. We argue that religious charities will intentionally use part of these funds for proselytizing purposes3 1. As a result, the religious preferences of believers in the population are altered and this alteration leads to a change in the relative powers of the different denominations and the religious nature of the society as a whole. The fact that a particular denomination is given the rights to provide the social service means that the government is intentionally or unintentionally giving one sect an advantage over others. This is mainly because the ‘award-winning’ sect will use the funds to pursue its specific religious causes. Any law passed by the government to ensure the complete secular nature of the service is bound to fail under instances of imperfect or costly monitoring. Also, requiring the religious charity to exclude any religious content in the provision of the social service may mean that the religious charity will have to act as a secular producer and this nullifies their efficiency advantage which was the reason they were given the award initially. 30 In this model, the terms religious charities, faith-based agencies and denominations will be used interchangeably. 3' Proselytizing can still occur even if denominations do not consciously pursue it. This is usually in the form of externality effects arising fi'om the existing religious and cultural environment. The different methods through which such effects occur will be discussed later in the paper. 60 In instances where the government provides equal grants to all types of denominations, this is shown to still have far-reaching consequences on religion and believers. Furthermore, the model examines the instances where particular denominations may decide to discriminate in the provision of the social service by restricting their services based on the religiosity or religious affiliation of the social service recipients. The model derives results that have important policy implications for present and fiiture programs by the government to fund religious and secular charities. The paper raises many significant issues that are sometimes overlooked by many parties involved in the debate. In section 2.2, we discuss the theoretical and empirical literature on nonprofits and faith-based agencies. We later explain the model in detail in section 2.3 and derive results in section 2.4 under different assumptions. We then conclude in section 2.5. 2.2 Literature Review The literature on the economics of nonprofits and altruistic behavior has developed substantially over the years in the areas of economic theory and empirical research. According to Rose-Ackerman (1996), economists are increasingly becoming interested in exploring areas of related interest that were originally thought to be outside the realm of economic inquiry. Rose— Ackerman (1996) states that many theories have been developed to explain the motives behind charitable donations, ranging from donations driven by a sense of commitment as in Sen (1977) and Sugden (1984), to donations driven by the intention of signaling one’s wealth to others as in Glazer and Konrad (1996). Andreoni (1990) also presented another explanation for altruistic behavior based on the desire to gain utility from the act of giving, referred to as the warm-glow effect. 61 Additional literature has focused on the economic behavior of nonprofit institutions in particular. Rose-Ackerman (1996) presents the theories developed that aim to explain the functions of nonprofits. One function of such organizations is to provide a channel for private donations, as many donors may trust nonprofits more than other types of institutions, such as for-profit agencies. Also, nonprofits may have emerged as a response to information problems that donors are facing as in the works of James and Rose- Ackerman (1986), Steinberg and Bradford H. Gray (1993) and Weisbrod (1989). Furthermore, “nonprofits may provide a more diverse collection of services than is possible in the public sector” (Rose-Ackerman, 1996). The empirical economics literature has mainly sought to test the hypotheses proposed by several theorists. Much of the empirical work has focused on testing the hypothesis of crowding out of private contributions by public spending with results ranging from complete crowding out as in Roberts (1984), Sugden (1982) and Warr (1982) to partial crowding out as in Comes and Sandler (1984, 1994), Steinberg (1987) and Andreoni (1989, 1990). With regards to the effectiveness of nonprofits, Rose-Ackerman states that initial studies such as Clarkson and Martin (1980) concluded that for-profits were more efficient than nonprofits due to the advantage that the profit motive presents. Others such as Hawes and Phillips (1986), Weisbrod (1988, 1994) and Aaranson et al (1994) concluded, using data from nursing homes, that the lack of the profit incentive served as an advantage for nonprofits over competing agencies. Also, Rose-Ackerman (1996) argues that some studies such as Kagan (1991) and Kisker et a1 (1991) conclude that for- profits provide services at a lower cost but also at a lower quality. As such, “when 62 nonprofits provide higher quality services, they may also charge higher prices to compensate, [thus] reducing their advantage” (Rose-Ackerman, 1996). An essential component of the nonprofit sector is religious charities and faith-based agencies”. The vast majority of the theoretical literature on the economics of nonprofits has focused on the economic choices of private donors, the economic functions and decisions of nonprofit agencies, and the impact of income and wealth redistribution policies by the public sector on the decisions of donors and nonprofits. There has not been any formal examination of the impact of government policies on the religious state of society, both on the individual and group level. In addition, the models have treated all types of nonprofits identically, while none has sought to examine religious nonprofits in particular. In this paper, we formally examine the relationship between religious nonprofits and the public sector with the primary aim of studying the impact of this relationship on religion in society. Also, we specifically investigate the religious nature of religious charities in order to study their uniqueness relative to other types of social service providers. Reinikka and Svensson (2003) develop a simple model to highlight the differences between religious nonprofits and for-profit service providers. In their model, managers of nonprofit agencies will seek to hire altruistic workers that are willing to work at lower wages and produce the service at a lower cost, thus allowing the agency to offer the service cheaper than it is offered by for-profit agencies. In our model, instead of assuming that managers intentionally seek to employ workers who are willing to accept lower wages, we endogenize workers’ wages, and are able to derive the proposition that 32 We do not differentiate between congregations and faith-based organizations as in Wuthnow et al (2004). All nonprofit agencies that have a distinctly religious identity fit into our model. 63 religious nonprofits are more efficient than secular or non-religious nonprofits in the production of social services. This essential result will then allow us to study the impact of government funding of religious or faith-based agencies on all parties involved. The majority of empirical work on religious nonprofits has been in the fields of sociology of religion and religious studies. These empirical studies have aimed to study the unique nature of religious charities and also to present comparative analysis with secular or for-profit organizations. Smith and Sosin (2001) examine the general characteristics of faith-based agencies in a series of interviews with faith-based officials. They classified faith-related agencies in terms of source of funding, link to religious authority or congregation and the underlying religious culture in which different agencies exist. Their study provided an insight into the degree of linkage between faith-related agencies and the doctrine they subscribe to, and also policy implications with regards to possible funding of such agencies by the government (Smith and Sosin, 2001). Ebaugh et al (2003) also discuss other authors who have classified the different characteristics of faith-based agencies, such as Unruh (2001) and J eavons (1998). In their study of faith-based agencies in Texas, where the concept of the F aith-Based Initiative was first implemented, Ebaugh et a1 (2003) argue that faith-based agencies do not differ fi'om secular agencies in the types of services that they provide to their recipients. However, Ebaugh et al (2003) concluded that faith-based agencies are unique in that in addition to providing the social service, they also convey a collection of religious services simultaneously. This led to their conclusion tha , “‘organizational culture’ significantly differentiates religious from secular agencies, with the former supporting a culture thoroughly imbued with religious values in terms of staff interaction 64 with clients” (Ebaugh et al, 2003). With regards to specific social programs, many studies have arrived at a variety of results concerning the effectiveness of faith-based agencies. Desmond and Maddux (1981) studied the success of religious programs aimed at drug addicts in San Antonio and concluded that the programs had a positive impact relative to other programs. Other studies include Berrien, McRoberts and Winship (2000) where they studied the effect of clergy-police partnership on crime rates in Boston. (Wuthnow et al, 2004). In his book, “When Sacred and Secular Mix: Religious Nonprofit Organizations and Public Money” (1996), Stephen Monsma presented a comprehensive historical and empirical study of the relationship between nonprofits and the public sector. He examined the history of the relationship between these two sectors and studied this relationship in the context of different religious denominations. These studies and others provide useful insights as to the future of the F aith-Based Initiative and other programs that involve some form of economic alliance between the government and faith-based agencies. Although extensive applied research has been done on religious nonprofits, little has been said about the impact that government funding of these nonprofits has on religion and believers in general. The literature has mainly dealt with the characteristics of faith- based agencies and their effectiveness in relation to other service providers. We will explain the unique nature of faith-based agencies or religious charities and provide an economic rationale for their efficiency. The paper fills an important gap in the literature by explaining how denominations and their affiliated faith-based charities compete with each other for adherents, for public funds and-ultimately-for religious hegemony. Ultimately, the paper predicts the impact on religion and believers of any relationship that 65 might exist between these agencies and the government sector. Several empirical results that already exist in the literature will be shown to support our propositions. 2.3 The Model The paper makes use of the framework of spatial location models. We follow, to some extent, the procedure of Barros and Garoupa (2002) in which they use a spatial location model to formulate a theory of church strictness. In particular, they use a modified Hotelling model (See Hotelling (1929)). Also, denominations or charities compete in a Nash environment. The games of strategic interaction in this model will utilize the tools of game theory and in particular, the concept of ‘backward induction’, to derive the sub- game perfect Nash equilibrium results. Similar to Barros and Garoupa (2002), we study a situation where believers locate on the ‘religious spectrum’ and choose that denomination that maximizes their utility. This follows the Hotelling model of consumers grouping near different sellers, according to their preferences. Furthermore, we model the choices of individuals in similar fashion to Becker’s theory of household production. See Becker (1965, 1974), Becker and Murphy (1988), and Stigler and Becker (1977). In our case, we have individuals’ resources allocated between religious consumption (in the form of religious investment) and secular consumption (consumption of private commodities)33 . The main components of our model include the government, the adherent population and the religious charities or nonprofits. The government consists of the decision makers that make choices with regards to public revenue and public expenditure. The religious 33 In this model, it is charities and the government that actually choose the equilibrium resource allocations. Charities or denominations choose a religious investment level according to some given objective and all adherents conform to this level. 66 charities or denominations comprise the religious authorities that direct and coordinate the institutions’ plans and services, and the clergy that are essentially the religious workers performing their duties in accordance with the rules and regulations set by the religious authorities. The adherent population consists of the total number of believers in the society. Government: - The government has hands that it intends to award to a nonprofit agency. We assume that the funds are obtained exogenously. The purpose of the funds is the production of a social good or service, Z . This service or good is assumed to be different from the religious ‘club’ good, R ,that is already produced by religious denominations. The government may opt to award the funds to a religious nonprofit or a secular nonprofit or may have to choose between two competing religious nonprofits. We assume that the government seeks to award the funds to the most efficient nonprofit agency. In particular, the government awards the funds to the nonprofit agency that can produce the service with the least cost of production. Denomination: - Denomination or charity k is a religious institution that cares for the welfare of a community of adherents. The religious authorities in charge of the denomination are assumed to have a benevolent nature and as such, seek to maximize the total welfare of their adherents. For simplicity purposes, we have two denominations in the model, A andB. In addition to the task of providing its specific religious ‘club’ good to its adherents, a denomination may also be given the responsibility of providing the social good or service, Z . This happens when the government awards the funds or social service contract to the denomination. 67 Religious Clergy: - They represent the staff working in the religious organization. In other words, they are the religious producers or workers. These workers are employed by the charity to produce the religious ‘club’ good, Rk. But in addition to producing the religious good, they will also be assigned the task of providing the social service, Z , in the event that the charity they work for is awarded the contract by the government. The objective of the religious clergy is to maximize their utility by preaching their doctrine to a larger community of adherents. Their utility increases as the size of the community increases. In other words, the amount of utility they derive is directly proportional to the amount of preaching they can accomplish. Believers/Adherents: - An individual i is a believer who belongs to a particular denomination. There are N believers in the population. In an extension to the model, we consider a set of non-believers or pure secularists, n, in addition to the N believers. The utility of a believer i in denomination k is given by: There are two main components of this utility, namely the religious utility and the secular utility. The religious utility is given by: 2 fl R. - s (r. - a.- ) In the above function, R, is the religious ‘club’ good that is exogenously provided by denomination/C. The parameter ,8 represents the weight placed on religious consumption in the population. It is the same for all individuals“. We can regard it as an 34 We can have fl vary by individual, although this will not affect the results of the model. However, a value of 0 may indicate no preference for religious utility which may indicate that the individual is an atheist or an agnostic. This could be a way of structuring the preferences of these groups in the population. 68 indicator of the ‘power’ of religious institutions or religion in the society, as evidenced by its effect on the utility function of all individuals. This power may represent the prominence of religious institutions and their impact on society in general. This parameter is not related to the individual-specific preference of ‘religious investment’, given by al.. The religious parameter a, represents the ideal position of individual i on ‘religious investment’. A principle assumption of our model is that preferences can be represented by a unidimensional variable, in the form of ‘religious investment’. All individuals in the population have an ideal preference regarding the ‘amount of religious investment’ they are willing to undertake in their religious life. This religious investment may refer to the preferred amount of money each individual is willing to contribute to religious institutions, or the amount of time the person prefers to contribute in assisting in the social and religious activities of the religious institution he/she belongs to”. This parameter describes the level of religion preferred by individuals in terms of measurable variables such as monetary contributions or voluntary assistance in church activities. Thus, we can safely assume that these variables serve as proxies for the religiosity of individuals. As such, we can construct a spectrum of religiosity based on ideal religious investment preferences, starting from 0 (minimum religiosity) to 1(maximum religiosity). In his survey of the literature on Economics of Religion, Iannaccone (1998) remarks that most measures of religious involvement such as voluntary contributions or participation in religious activities are positively related to the level of religiosity in the denomination. For example, he states, “[that] the members of liberal Protestant 35 The ‘value’ of time may be in the form of the opportunity cost in terms of productive secular activities such as working, studying, etc. 69 denominations contribute a relatively small proportion of their income to churches (around 1.5 percent), whereas the members of conservative Protestant denominations, such as the Southern Baptists and the Assemblies of God, contribute significantly more (between 2 percent and 4 percent), and Mormon contributions average 6 percent of income” (Iannaccone 1998). Furthermore, Iannaccone (1998) states that religious involvement in terms of, “rates of church attendance, follow a similar pattern, with liberal Protestant denominations ranking lowest, conservative Protestants attending more, and sect members, such as Mormons and Jehovah’s Witnesses, attending still more (Dean Hoge and Fennggang Yang 1994; Iannaccone 1992, 1994)” (Iannaccone 1998). In a statistical survey on the determinants of religious participation, Iannaccone comments that, “members of conservative and sectarian denominations attend and give much more than members of liberal denominations even after controlling for socioeconomic differences”. (Iannaccone 1998) Thus, for expositional purposes, we will label the two denominations A and B as liberal and conservative respectively. The conservative or stricter denomination consists of the adherents that prefer high levels of religious investment while the liberal or less strict denomination consists of those that prefer low levels of religious investment. This distinction is made to allow us to examine the policy implications of our model. The level of religious investment chosen by denomination k isrk. We assume that denominations can move on the religious spectrum at no cost. We denote the cost incurred by individuals as a result of their obligation to conform to the teachings or rules of the denomination, byS. It is the ‘price’ of sacrifice. This value is the same for all 70 individuals in the society. From the form of this utility, we can infer that the individual loses utility as a result of conformism to the denomination’s rules, but also gets utility from giving his/her preferred investment level. As such, the total effect is given in the quadratic form, S (I; -— a, )2. The secular utility is given by: (1 _ fl){uik (Zk’Xi)} In the above function, (I - fl ) refers to the weight that society places on secular consumption in the population. Z k is the social good or service that may be produced by the denomination if awarded the funds and X, is the private consumption of individual i after investing in religion. The initial budget equation is given by: Y = X I. + al.. The actual budget equation is Y = X, + I‘k . Hence, the composite utility function will be as follows: U, = ,6{Rk-s(rk_a,)2}+(1- e){n,(z,,x,.)} (I) Where i6 {I,...,N};k E {A,B}. Stages of the Game: - The sequence of events in the model is as follows: - A \ V I Religious Competition/ Religious Provision of Social Service Religious Competition/ Original Preferences Revised Preferences Figure 2.]: Stages of the Game 71 2.3a. Stage 1: Religious Competition/Original Preferences W In this stage, the religious preferences of individuals in the population are formed and denominations compete in a Nash environment on this spectrum of preferences. To study this gradual formation of religious preferences, we employ an approach similar to the religious human capital method used by Smith and Sawkins (2003). This formation of preferences represents a long period of learning by the individual in his/her interactions in the society. It also represents an accumulation of parental investment decisions over time, in addition to the cumulative influence of the social and cultural environment. The outcome of this long process is given by al.. We assume that the individual has been primarily exposed to the influence of one denomination only. This can be due to the religion of the parents and the circle of close relatives and friends, or it can be due to the cultural and political structure of the country where the individual lives. This limited exposure to the teachings of a particular denomination has shaped the individual’s preferences over time. The exposure to teachings of other denominations is assumed to be negligible. We let this relationship be given by the following religious production function:al. = g [AH/L “13]”, which then becomes: a, = g [APE] since Ask : The influence of denomination k on individual i. This is due to direct effects such as preaching, learning, advertising, training, etc. The direct effects of a 36 k and —k refer to the two rival denominations in the model. We will later label them as A and B. 72 denomination on an individual’s religious preferences are due to the personal effort of the individual in the form of time invested in religious consumption, monetary contributions that provide religious utility and voluntary participation in religious activities. We construct the direct effect as a production process given by: AI], = 1k ([1911]) where, L, : time devoted by individual i to denomination k. \I" k : all other human capital contributing to religious investment or education. . . 2 62., when, /6‘I’,,a i, /6Lka‘I’k _>_ 0 These mean that as more time and human capital investment are devoted to denomination k ’s teachings, the individual becomes more committed to its teachings over time. We should note that A. k increases if we are considering the stricter or conservative denomination since with more time and education, the believer prefers a higher ideal religious investment level. In contrast, if we are considering the liberal or less strict denomination, 1k decreases with more time and education. But this increase or decrease must be constrained because, for instance, it is not plausible to have a believer become an atheist (a, = 0) if exposed to a substantial level of liberal teachings. Changes in religious preferences are usually small and slow”. A different but useful formulation would be to assume that all individuals start with 1k = 0 and increase 37 To make the concept more understandable, one can imagine that all individuals start at the midpoint of the spectrum and move left or right depending on the teachings they are influenced by. 73 depending on the teachings they are primarily influenced by. That is, a person exposed to less strict teachings would have Ark increase but still be to the left of the Spectrum’s midpoint. /ls_k : the influence of denomination —k on individual i . E : all other factors that influence an individual’s religious preferences. These are the indirect effects such as learning through parents, fiiends and the community. To consider the indirect effect, we can safely assume that all the individuals that influence the religious preferences of iwill experience the same process that i goes through at some point in their lives. More formally, we can state it as follows: E = §[A.k,/I_k ,E] and so on and so forth. BIT" / GE 2 038: indirect effect such as parents, strengthens the commitment and learning outcome of A7, , given that E was influenced primarily by 21' Off, / 8E < O: indirect effect such as parents, weakens the influence of ’14. , given that E was influenced primarily by lik . This means that if the surrounding community around i is committed to the doctrine of k , then i will also be influenced primarily by k ’s doctrine. The doctrine of past generations passes on to future generations through parental and social investment in an individual’s religious capital. This is similar to Smith and Sawkin’s (2003) concept of 3 . . . . . . . . . . ‘ 8 A, and IL, In these derivatives are those of mdrvrdual l and not hrs/her parents, relatives or friends. 74 social interactions that argues that religious involvement by individuals is proportional to their interactions with the surrounding religious community. Therefore, we assume that a, is formed initially by the influence of a single denomination, k , through direct and indirect means. This is given by: a, = g [2, , E] The denominations A and B take the ideal religious preferences of individuals as given and compete against each other in a Nash environment. We regard the denominations as benevolent players whose objective is to maximize the expected welfare of their adherents by locating at an optimal position on the ‘religious investment’ Spectrum. Then, individuals automatically join the denomination that is closest to their ideal position on the spectrum. We assume that all members of the population voluntarily join a denomination. 2.3b. Stage 2: Religious Provision of Social Service In this stage, the government decides which nonprofit agency to award the funds or grants to. We suppose that the objective of the government is to award the funds to the nonprofit agency that produces the good or service with the lowest production cost. Much work on religious nonprofits emphasizes the quality of service that they provide in comparison to other types of nonprofits and to for-profit service providers. The argument made is that religious nonprofits produce better quality services due to their long experience in service delivery and unique methodology and as such, should be encouraged by the public sector through funding. In our paper, the government funding is provided for efficiency reasons and not for quality concerns. The main results of the 75 model hold even if we assume the quality-driven objective for the governrnent.39 Thus, the government seeks the most efficient producer of the social service. In this stage, if a religious denomination or charity is awarded the funds, that denomination will fulfill the task of producing the social service, Z k . We will later examine a case where more than one charity may be awarded funds, as this is the case with the current Faith-Based Initiative. Also, the denomination(s) awarded the fimds should be a more efficient producer of the service than the government itself. The funds are provided for a specific purpose, namely, the production of a social service. The government, through some objective, has decided that it is in its own interest to delegate the task of producing the social service to the religious charity. This social good or service may be for educational purposes, such as building a school or a library. It may also be for health purposes, such as building a hospital, clinic or a drug rehabilitation center. We should note that the rules governing grants under the Faith-Based Initiative state that charities are prohibited from using the government funds for religious worship, teaching or proselytizing, but should only be used for the provision of non-religious programs. As such, charities should aim to separate their religious activities from the non-religious services that are provided using the awarded government funds (Guidance to Faith-Based and Community Organizations on Partnering with the Federal Government, White House Faith-Based and Community Initiatives, http://www.whitehouse.gov/government/fbci/). However, our central argument in this paper is that, coupled with the task of providing the service, the denomination and clergy 39 In addition to being a reasonably sound objective for the government, the efficiency objective also has the advantage of being more convenient for empirical purposes. 76 are incidentally given an opportunity to proselytize the particular doctrine or religion that they abide by. In the course of producing and providing this service, the charity may seek to include religion via several means. A careful examination of the methods by which religious charities convey religious messages or doctrine as part of their social service delivery process is done by Unruh (2004). One method, that she calls religious self-descriptions, is through printed media such as program descriptions, brochures, pamphlets, etc. Another method is through religious objects present in the surrounding environment. This may include wall pictures, architecture of the buildings, artifacts, etc. The religious music played may also have a spiritual effect on the recipients of social services (Unruh 2004). In addition to these subtle and indirect ways, more direct methods can be employed such as prayers for the recipients, reading out loud religious text or quotations and participation in group worship (Unruh 2004). Also, the staff can also have an effect, through their dress codes, manner of conduct and their informal conversations with the consumers or recipients of this social service. Any imposed separation of religion and social services is arguably an impossible task to achieve. This is mainly due to the fact that religious charities are, by definition, religious institutions with a religious identity that is essential to their operation and performance. Any forced disjointing of the religious element inherent in them and the social services they provide will only succeed up to a limit beyond which it cannot go further. Religion in both its implicit and explicit form of expression will continue to leave a noticeable mark on the activities and social service philosophy of faith-based agencies. Furthermore, government monitoring of services provided by religious charities is both costly and difficult to implement. 77 The essential idea is that religious charities have numerous methods of utilizing the government funds for religious purposes. The religious clergy in particular will aim to preach their religion to the consumers or recipients of the social service that are initially non-adherents of their denomination. This is because by doing this, they can preach to a larger audience than before and thus gain more utility as a result. In so doing, they alter the distribution of preferences on the religious spectrum and shift the average religiosity level of the population in the direction of their preferred level. We are assuming that all members of the population, adherents and non-adherents, are consuming this social good or service that is provided by denomination k 40. The non-adherents are particularly targeted by denomination k ’s clergy. We let the outcome of the proselytizing be represented by A._ k. That is, the individual i is now affected not only by denomination k , but also by denomination -k. The individual, through the consumption of the social service and its associated religious messages, is now exposed to the teachings of another denomination, -k . The individual is thus exposed to the doctrine of more than one denomination and this alters his/her lifelong beliefs. 2.3c. Stage 3: Religious Competition under Revised Preferences With the added influence of another denomination’s teachings on the preferences of an individual, the individual will accordingly revise his/her religious preferences. The function that now determines the ideal religious preferences of i is given by: 40 This is consistent with the result obtained by Wuthnow et al (2004) in which they show that Faith- Based organizations cater to a varied community of social service recipients. 78 a, = g [ANAHE] For simplicity, we assume that this can be given by: a, = g [2,,E] :1: 2L, Whether A._ k is (+) or (—) will depend on the denomination that is awarded the funds. We have, a. = a. i- i, (2) Denominations will now compete in the same manner as in stage 1 but with revised religious preferences of individuals. We now investigate the model in more detail to derive results under different assumptions. 2.4 Results Stage 1: Given the original spectrum of religious preferences, the denominations maximize the welfare of their adherents and locate at the Nash equilibrium positions. With two denominations, there are two corresponding equilibrium positions on the spectrum. Each denomination maximizes the following: Denomingtion lg: Ma’{nit—shat}+(1—eiiuiktxiiilgtava VII 0 Subject to Y = X, + r, g (a) : distribution of ideal preferences. More specifically, we can write denomination A ’3 problem as follows: 79 Denomingtion A: Max!{fl{R.-S(rt-a.-)2}+(1-fl){Ur-A(Xr)llg(“)da VA} 0 st Y = X i + rA Substituting in the budget equation, we have, Denomingtion A: i Max {,3{RA -S("A ‘0.)2} +(1—fl){UiA(Yi —rA )}}g(a)da erl 0 Denomination B will have similar equations. First Order Condition for A: ! jt—wtr.—4)+(1—e)(aa/a«i)(—1)}da 0 r; =t/2-[(1—p)/(2ps)](ao,, /aX,) Similarly, for B, we have: r,‘ =1/2+t/2-[(1—fl)/(2fls)](6v,s WC) We assume g(a) =1. These represent equidistant allocations (from the end points) on the religious spectrum, if we ignore the marginal utilities of private consumption, which are not relevant for our analysis. 80 Figure 2.2: Religious Equilibrium As discussed earlier, r; would be the optimal position chosen by the liberal denominationAand I}; is the optimal position chosen by the conservative denominationB . 542%: In this stage, the government chooses whom to award the funds to. Let the funds be given by T Ideally, the funds for the social service should be used to cover mainly the costs of capital and labor. But the denominations may use part of the funds for proselytizing purposes. Therefore, actual expenditure of the firnds is given by: T = Cost of Capital + Cost of Labor + Proselytizing Costs TA = Cost of Capital + COAL + A ’s Proselytizing Costs, A ’s expenditure of T. TB = Cost of Capital + (UBL + B ’s Proselytizing Costs, B ’s expenditure of T. To = Cost of Capital + (UGL , G ’s expenditure of T. Where a) is the wage rate paid to the social service workers or producers and L is the number of hours they are willing to work. The government will award the funds to a denomination if and only if the government is less efficient in the production of the service than the two religious charities. 81 Assuming that to be the case, the government then chooses to award the funds to the denomination that is more efficient or produces the service at lower costs. If the government cannot observe the proselytizing costs, then it bases its decision on the factor costs of both denominations. For example, the charity that has more volunteer workers will get the fimds since its total labor costs will be lower than the labor costs of the other denomination. We argued that the government chooses to award the funds to a religious charity because it expects the service to be produced at a lower cost. But instead of assuming that the cost of production is lower for the denomination, we construct a process that explains why this is the case. In other words, we endogenize the production costs of the social service. The producers of the social service are the persons in charge of the religious denomination or charity and we denote them by m . They are the religious workers. Clergy members have a utility function that describes their preferences in the religious arena. Specifically, this is given by, Um = Um (Xm,L,,,,P) where, X m : private consumption by m. Lm : total number of hours worked by m. P : volume of proselytizing done by m. The budget constraint of m is given by: (omLm = X m. That is, total wages equal total consumption. We assume that the clergy do not consume the social service. But the volume of proselytizing is given by: P = Lm 3.0 , where, 9 : Proselytizing per person per hour. 82 0' : total number of individuals being preached to. Thus P =(Total number of hours spent on preaching)x(Preaching per person per hour)x(tota1 number of individuals preached to). Furthermore, the total number of individuals preached to is determined by two factors: r, and Z k . It depends on the number of adherents already in the denomination, and the number of non-adherents preached by the clergy as they consume the social service. Without the funds, k is as follows: P = Lm 19.0(1; ) With the funds, P' = Lm.6.a(r;,Zk) The difference is: P' — P = Lm.o.o(r, ,2, ) — Lm.t9.0'(r, ) = Lm.o.(o(r,,z, ) — o(r;, )) Clearly, we can observe that the difference is due to the presence of the social service. We can now solve m ’3 problem: Max U... = U. a); )and((t);l > a); ). A government thus awards the funds for a social service to a particular denomination because of the decrease in costs associated with the denomination’s production. But we should note that that the portion of the hands spent on proselytizing should not exceed the difference in costs between the govemment’s provision and the denomination’s provision of the service. Even with lower costs, the denomination may use a large portion of the funds such that very little amount of the social service is produced relative to if the government is the producer. 2.4a. Funds to a Single Denomination Initially, we examine the case where only one denomination receives funds from the government. We assume for now that the government has awarded the funds to denominationA, because(a); > a); ). That is,A ’3 religious producers have a lower supply price of the social service thanB ’s producers. Since the government cannot observe the portion of funds spent on proselytizing, the denominations may have to alter their factor costs to increase their likelihood of obtaining the award. This means that the 86 denominations may be asked to present a summary of their projected factor costs that the government uses to decide the final recipient of the funds. Stage3: With A producing the social service, it would seek to influence the preferences of B ’S adherents. A produces both Z A and AA (the proselytizing outcome). New preferences are given by: All of A ’s adherents maintain the same preferences because the proselytizing is directed only at B ’s adherents. All B ’s adherents revise their preferences due to the influence of A ’s proselytizing. The new preferences are given by: (1;: g'[/IA,A.B,E] a} =gl/IBIEI #1,. a}. =aj—AA The new preferences are reduced by ALA because A is originally on the left part of the spectrum and seeks to lower the level of ‘religious investment’ or religiosity preferred byB ’s adherents. A wants B ’s adherents to become more liberal. We assume that the proselytizing affects all B ’s adherents equally. The denominations now compete on this revised spectrum and locate optimally. We now include the social service Z A in the utility function of all adherents as they are now all recipients of the social service. 87 (I AzMax {,3{R,—s(r,—o,)}+ +-(1 ,B){o. (2, Y r,)}}g(o)do IrA} 0 + :[{fl{RA -S(r,, -a,-)2} +(1-fl){U,A(ZArY-r,)}}g(a)da B: Max-HER {RB— (r—a) )}+ +—(l ,B){U. BA(Z, Y— rB)}}g(a)da {7'3} +]{B{RB— s(rB —aj)}+ (l— ,B){UjB(Z,,Y—r3)}}g(a)da r, =t/2—/1/2—[(1—,6)/(2,Bs)](ao,, /aX,) r; =1/2+t/2—A/2—[(1—fl)/(2fls)](dojB/6Xj) Wenowhave, t'=t—AA/2,wheret=I/2. r,“ =r,’ -/i./2A r8“ =rB'—/l,/2 88 .......... . I 3 I a l.AA AB rBA Figure 2.33: Proselytizing by ‘conservative’ denomination Promsition 2: If the government awards fimds to a charity with a low average religiosity level, the average religiosity of the population as a whole will reduce or move to the left on the spectrum. Proot: Consider: t' = t — A, / 2 Also, r,“ < r,‘ Miller, Arthur H., and Martin P. Wattenberg. (1984). “Politics from the Pulpit: Religiosity and the 1980 Elections.” Public Opinion Quarterly, vol. 48, pp. 301-17. Montalvo, Jose G. and Marta Reynal-Querol. (2003). “Religious polarization and economic development.” Economics Letters, vol. 80, pp. 201-210. Monsma, Stephen V. (1996). When Sacred and Secular Mix: Religious Nonprofit Organizations and Public Money. 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