Denominational Schism: An Economic Perspective

In this paper we present an economic model 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. Two effects are implied by this view. On the one hand, the more members a network has, the more anonymous it gets, meaning that the signals one can receive about the type of some other are getting worse. On the other hand, the larger a network is, the more potentially valuable information is available. 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, our findings also contribute to the explanation of the so-called Kelley Thesis, stating that 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.