The Consequences of Religious Market Structure

In a largely ignored chapter of The Wealth of Nations, Adam Smith laid the foundation for an economic theory of religious institutions. Smith emphasized the importance of market structure, describing in detail the differences between state-sponsored religious monopolies and competitive religious markets. This article builds on Smith's discussion both theoretically and empirically. The author formalizes the concept of a religious market, defends its relevance, and derives predictions concerning the observable effects of religious market structure. Data on the religious characteristics of 17 developed, Western nations confirm Smith's claim that monopoly and government regulation impede religious markets just as they do secular ones. Across Protestant nations, rates of church attendance and religious belief are substantially higher in highly competitive markets than in markets monopolized by established churches.