How does organized religion work? Why do some preachers make a lot, while others make a little? Can an economic model of religion explain why American football quarterbacks make a lot?
I try to answer these questions in this post.
In economics, we can see religion as a “comfort” good that is also a public good. It is public because within a church, it is non-rival and nonexclusive. What this means is that the preacher can expect an honest congregation to donate what each member views as the value of the preacher’s services, i.e. his sermons, etc. And from the donations, the preacher can derive his livelihood.
The key factor here is honesty. If church members pay “honestly,” no one “free rides” by donating nothing, while allowing a few rich members to pay for the preacher’s services.
Suppose that we have a 100-member congregation, each valuing his religious “benefit” at $50. Honesty makes all members donate $5,000. Suppose that the preacher needs only $1,000. Organized religion then has a “profit” of $4,000.
Where will the profit go? It can go to expand the church, and as it expands, the profit may hit a plateau or even decline. Why? This is because the additional members will likely value the membership benefit at less than $50. The preacher may now ask for more for his services since he now has to preach to a larger congregation. So, there is a limit to the size of a church. The limit is high the more honest its members, and the less “greedy” are its church leaders. In an economics sense, we can explain the size of a church or sect on these lines.
What will make a church wither? If the members and its leaders all become “greedy” and try to avoid paying “proper” dues or there is corruption in the use of church funds, then the glue that holds a church together starts to unravel. The value of religion as a comfort good degrades in this case.
What does all this have to do with the pay of football quarterbacks? Well, a sport is pretty much like religion. Sports fans are members who pay through ticket sales and TV viewing that generates advertising revenues that pay in part for the sports teams. The greater the reach of this religion, the more a team can pay its players. The quarterback is like a preacher, but he can be greedy and demand a high pay. And he can get this.