COMPETITION BETWEEN EXCLUSIVE FAITHS Why the Jews ceased

COMPETITION BETWEEN EXCLUSIVE FAITHS Why the Jews ceased proselytizing and why the Reformation made the Catholic Church stronger Mario Ferrero May 2010 University of Eastern Piedmont King’s College and Department of Economics, University of Western Ontario 1

PUZZLES 1) About the end of first century CE the Jews ceased proselytizing. Yet Destruction of CE 70 lowered cost of (and provided added incentive to) Gentile mission. How so? 2) Treaty of Westphalia (1648) carved religious borders of Europe in stone. Yet Catholic Church continued huge reform effort in its own domains (Counter-Reformation). Why bother? WANTED Model of competition btw. exclusive faiths: implies that brand loyalty by individual customer must be 100% 2

EXTANT – model of competition btw one exclusive group and many nonexclusive suppliers: market signaling (Iannaccone 1995; Ferrero 2009). Signaling collapses when group confronts another exclusive group. – model of religious strictness where groups compete by choosing locations on a doctrinal line (Barros and Garoupa 2002; Ferrero 2008). But our puzzles show absence of entry. LEAD Incumbent group pre-commits capacity to deter entry. If this works, entry is not observed, but over-commitment is. Standard IO model except that groups don’t sell output but go out “fishing” for members from a common pool. Missionary effort exhibits diminishing returns. 3

Incumbent (I) and entrant (E) derive benefits from membership M acquired through missionary effort x at constant marginal cost w; M(x) strictly concave. Each group’s “catch” proportional to own share of input x. Entrant incurs one-time fixed cost F. Benefit functions: (1) (2) Best response functions defined by: (3) (4) As in a commons, effort is such as to equate MC with weighted average of MP and AP. Symmetric Nash equilibrium. 4

THREE-STAGE ENTRY GAME Incumbent moves first and can credibly precommit to a given level of effort if entry occurs. B/c of this pre-emptive “capacity expansion” incumbent’s marginal cost falls to w. I < w. E. This precommitted effort level, joined with the lower marginal cost, can be such as to either deter entry or accommodate the entrant, whichever is more profitable to incumbent. The first option leaves the incumbent as the sole active group, though its effort level is distorted upward by entry threat. The second option places the incumbent in the position of a Stackelberg leader. 5

TIMELINE Stage 1. I chooses own effort level for post-entry stage, , at unit cost w. E. Stage 2. E decides whether to enter, at unit cost w. E and fixed entry cost F, or stay out. Stage 3. If E enters, the two players simultaneously choose effort levels x. E and x. I under Nash behaviour. Marginal cost of effort is w. E for entrant; for incumbent, it is w. I < w. E up to and infinite afterwards. If E stays out, then I is a monopolist. Stage 3: Effort competition after entry Nash equilibrium defined by (4) and (3’): (3’) 6

Figure 1 x. E x. I(x. E| w. E) x. I(x. E| w. I) N Z A B x. E(x. I|w. E) x. I 7

Stage 1: The incumbent’s strategic effort choice. Accommodation: Stackelberg equilibrium. Incumbent precommits effort to maximize (1) subject to (4). Entry deterrence. I precommits to effort response x. E satisfies (4) and (6): such that E’ best (6) Problem is interesting in the intermediate range of F values for which deterrence is feasible but not necessarily profitable for I. 8

To find explicit solution we use: (7) Stackelberg equilibrium (point S) becomes: (8) (9) Entry deterrence equilibrium (point Z) satisfies (8) and (10): (10) 9

Deterrence is superior to accommodation if: (11) This difference monotonically increases with F as long as S is on the left of Z (Figure 2). Intuition: increase in F shifts point Z to the left and hence decreases , i. e. it reduces the overcommitment of effort that is necessary to keep E out, and this is profitable as long as >. However, overcommitment of effort remains in the deterrence equilibrium. 10

Figure 2 x. E x. I(x. E| w. E) x. I(x. E| w. I) S Z A B x. E(x. I| w. E) x. I 11

Proselytism by Second Temple Judaism – is controversial – boundary btw Jew and non-Jew ill-defined – no record of organized active mission However, synagogues were open, Gentiles were attracted to them and were welcome – “soft mission”. Reason for attraction was the Jews’ “secondary literacy”, ie higher human capital. After about CE 100: – the “Jewish tax” hardened boundaries – prohibition of circumcision of non-Jews (Hadrian) – doctrine of Noachide covenant Bottom line: soft mission would no longer do; choice became either “hard” mission or give up. The rabbis gave up. 12

Harnack ‘s (1908) estimate: in early first century 4, 200, 000 Jews in the Roman Empire, or 7% of population. Take 50, 000 returnees from Babylon in BCE 500 (Ezra, 2: 64 -65). In 500 years, this number multiplies by factor of 80, to 4 millions in CE 1. The implied annual growth rate is 0. 88%. No clues for Mediterranean region. World growth rate btw BCE 200 – CE 1 is 0. 05 – 0. 06%. This implies gap of 0. 82– 0. 83% per year. BIG NUMBER!!! Factors may have been 1) better hygiene, 2) aversion to infanticide, abortion and contraception, 3) social protection for orphans, the sick, the poor. But this is not enough to account for gap. So, Jewish proselytism was a very successful enterprise. Why was it discontinued? Two possibilities: the Destruction and Christian competition. 13

Not clear that the Destruction undercut Gentile mission: possibly higher costs, but for the first time purity laws made largely irrelevant as the Temple was no more. Unprecedented opportunity: yield on levitical laws, relax circumcision requirement, start a broad, aggressive Gentile mission, become a universal religion stripped of ethnicity. Also, unprecedented incentive: without the Temple the land of Israel was not so special anymore, so why not react to the disaster by expanding into the outside world? The rabbis thought otherwise. Why? Success of Christian mission to Gentiles!! 14

Epoch-making choice by apostle Paul about CE 50: Christians’ salvation comes from grace, not the work of the Law (Galatians). This move pre-empted anything the Jews could possibly have done or two generations later: they had to make piecemeal adjustments to the Law, step by step, whereas Christian “capacity” was now unbounded. Why Paul’s choice? Christian mission to the Jews was failing and Christian communities were becoming more Gentile. Hence, HC levels were falling and attraction could less and less be counted upon. To offset Judaism’s competitive advantage, the only resort was price cutting: a drastic lowering of the entry price for Gentiles. 15

BACK TO MODEL Paul’s choice dramatically increased productivity of missionary effort among Gentiles, ie lowered marginal cost of effort. Since Paul acted before anyone knew about the upcoming Destruction, his precommitment of missionary effort was calibrated on full Jewish law. So entry cost for Judaism (F) was then high enough to make deterrence superior for Christians. When F came down somewhat, it was too late. 16

The Counter-Reformation It made the Catholic Church more Catholic than ever before. Instead of compromising, it hardened and intensified all the points targeted by Protestants. Theological side was old: sacraments, doctrine of the Eucharist, doctrine of justification, Scripture vs apostolic tradition, Purgatory and indulgences, Marian cult, the saints. More of the same. Disciplinary side was new: rank-and-file ordered (and monitored) to attend regular Mass, take confession and communion, hear sermons, attend catechism, marry only in church. 17

Enforcing this discipline required huge expansion of both clerical and volunteer effort: -- new religious orders, particularly devoted to education (Jesuits) -- bishops forced back to work: residence in their diocese, end of multiple appointments, supervision of their priests, estabhishment of seminaries -- parish priests to be celibate, educated and trained in seminaries, to say Mass and give sacraments regularly, teach catechism, and be paid more -- promotion of lay militant confraternities, especially the Marian congregations sponsored by the Jesuits, to prod and monitor the ordinary people -- key workbooks standardized (Missal, Breviary, Catechism) -- whole rural areas, or towns infected by Protestants, were missionized by the orders to make them “Christian”…. -- repression: Inquisition and Index of Forbidden Books. 18

Re-Catholicization of Europe worked because it relied on competitive incentives: saint-making was centralized at the Vatican and orders competed for new saints through outstanding service (Ferrero 2002); lay confraternities that came out first in service were awarded a prize. A volunteer contest with unlimited entry and one prize maximizes aggregate effort (Cugno and Ferrero 2004). Ekelund, Hebert and Tollison (The Marketplace of Christianity, 2006) argue that the Reformation was triggered by the Church’s price discrimination on the indulgence market. This pushed certain groups to defect and accept the Protestant offer of a lower price for salvation. In reaction, the Church lowered its salvation price (ie raised its service quality) to counter entry. This does not account for the facts: price of Catholic membership, hence of salvation (as “there is no salvation outside the Church”) was increased, not decreased, in response to entry. 19

Why raise membership price to forestall future entry? Religious capital, if denomination-specific, supports denominational loyalty. People switch if either they are underprovided (Middle Ages) or capital is transferable. Therefore: 1) make the capital Catholic, hence heightened product differentiation from the Protestants 2) Force high levels of capital upon people through monitoring and competitive mobilization. This required huge initial investment in capacity: new orders, new confraternities, network of seminaries, centralized saint making, centralized clerical discipline. Once this was in place, cost of Protestant entry became prohibitive. BACK TO MODEL Extreme product differentiation increased entry cost, so entry deterrence through simultaneous precommitment of effort became best strategy for the Church. 20