The Structural Failures of the Heavenly Markets

In the article “The Structural Failures of the Heavenly Markets,”  Wayne Eastman and I undertake a comprehensive critique of the way economists and sociologists have applied market metaphors to the study of religion, arguing that the conventional wisdom within the religious economies literature is too simplistic and misses important structural issues that can lead to religious market failure rather than religious vitality. At the core of their argument is a challenge to a widely cited hypothesis in the field — most prominently associated with Laurence Iannaccone and other proponents of rational‑choice theory — that religious competition and pluralism inherently strengthen religion by stimulating supply‑side innovation and increasing demand among potential adherents. The religious‑economies approach analogizes religious organizations to firms in an economic market: in this view, a competitive religious “marketplace” with many denominations and options satisfies diverse spiritual preferences, just as a competitive commercial market satisfies consumer preferences. This pluralism is thought to incentivize religious suppliers to work harder to attract and retain followers, which in turn increases overall religiosity, attendance, and engagement. In contrast, monopolistic religious environments, where one institution dominates, are argued by some scholars to stifle innovation, reduce incentives for outreach, and ultimately weaken religious life. Wayne and I acknowledge the theoretical lineage of this perspective but argue that it is incomplete because it fails to account for the very structural problems economists identify in markets generally — namely externalities, public goods, and information asymmetries — which can also exist in religious contexts and undercut the assumed benefits of competition.

Rather than simply accepting that competition produces positive outcomes for religion, we build a model in which perfect competition in religious markets may generate outcomes that fail to produce positive social externalities — benefits that accrue not just to individual consumers but to the broader community — and in doing so can undermine religious faith itself. We point out that in the presence of externalities, markets can fail; a classic example is environmental pollution, where individual transactions do not account for social costs. Analogously, in religious markets, if competing organizations focus narrowly on attracting adherents without fostering broader communal or social goods, the market equilibrium may emphasize forms of religion that appeal to individual preferences while neglecting communal bonds, social trust, or other positive externalities that historically have been associated with robust religious life. In this sense, competition can inadvertently foster weaker forms of religion that, while attractive to certain individuals, do not generate the kinds of social cohesion or normative frameworks that sustain deep commitment over time. Because these externalities are not properly “priced in” or accounted for by individual religious “consumers,” the resulting equilibrium is one where the market appears efficient from a supply‑demand perspective but fails to deliver broader social or spiritual benefits.

To explore these theoretical claims empirically, we tested two competing hypotheses using state‑level data from the United States. The first is the traditional Iannaccone hypothesis, which predicts that greater religious competition or diversity will correlate with higher measures of religiosity — including self‑reported belief, religious attendance, and prayer — because competition encourages religious organizations to better meet individuals’ spiritual needs. The second is their contrary hypothesis: that at some levels, and particularly within Protestant markets where competition is often most intense, higher competition may actually correlate with lower levels of religious faith and engagement. Using quantitative measures of religious competition among Protestants across U.S. states, we found evidence suggesting that overall levels of religious competition among Protestant denominations are associated with less religious faith in aggregate, at least in some respects, thereby challenging the simplistic view that pluralism uniformly invigorates religion. Their results indicate that the effect of competition is more complicated and context‑dependent than earlier models assume, with intense competition potentially eroding communal features of religion that help sustain long‑term commitment and participation.

Our critique rests on a broader methodological point about how economic models are applied to social phenomena like religion. Markets — whether for goods or for spiritual services — are not self‑evidently efficient or beneficial merely because competition exists. Economists have long recognized that perfect competition, while a useful theoretical benchmark, often fails to capture real‑world complexities; things like public goods (services that benefit everyone regardless of who pays), externalities (unpriced social costs or benefits), and information asymmetries (where one party knows more than another) can produce outcomes where unregulated markets fail to produce socially desirable results. These classic ideas from economics, familiar from debates about environmental regulation or public infrastructure, are rarely brought to bear in religious market theory. By doing so, we remind scholars that the assumption of beneficial competition requires careful scrutiny, empirical testing, and attention to structural dynamics rather than just surface analogies between commercial markets and religious life. Their findings suggest that while certain levels of diversity may encourage choice and responsiveness among religious organizations, an unfettered competitive environment can lead to forms of religion that are less socially and spiritually enriching than proponents of religious economies would expect.

In sum, “The Structural Failures of the Heavenly Markets” advances an important corrective within the economics of religion by highlighting that market analogies cannot be imported wholesale without considering market failures. We show that competition in religious markets, like competition in economic markets, may not inherently produce better outcomes, and in fact can undercut the very phenomena that scholars seek to explain, such as robust faith and community‑oriented religious engagement. Our work thus complicates the narrative that pluralism is a universal good for religiosity, and calls for a deeper examination of how market structures interact with social and spiritual goods that are not easily quantified.

For a complete article, see: Young, Christopher W. & Eastman, Wayne. (2013). The structural failures of the heavenly markets. Rationality and Society, 25(1), 41–89. https://doi.org/10.1177/1043463112473737.