Institutional and Economic Determinants of Denominational Fractionalism and Schism

In this paper we present an economic approach contributing to the explanation of religious schism, a topic mostly dealt with in the fields of sociology and psychology so far. The main idea is to see religious groups as networks. These networks may serve as a device for exchanging information about and via other members. A modernizing economy is characterized by an increasing number of transactions with an increasing number of partners, leading to increasing transaction costs. It might be profitable for groups to split up in this economic environment in order to economize on these transaction costs. In our view, religious movements with stricter enforcement of their behavioural norms are growing in size, while such with rather liberal attitudes toward their norm enforcement face a loss of members. Historical and empirical results supporting our line of argument are presented. We find that the level of income and education attainment increase the fractionalization ratio in the states. Another interesting point in our empirical results regarding population size is that the number of entrepreneurs is positively correlated with the fractionalization ratio. The number of employees gives a negative coefficient, implying that this group prefers to be part of bigger groups due to their conformist behaviour.Classification-JEL: O17, Z12, Z13Keywords: Religion, Social Norms, Social Capital, Social Networks