The structural failures of the heavenly markets

Previous scholarship analyzing cross-sectional international data has noted that religious monopolies impede the efficiency of religious markets and that the benefits of competitive markets apply in religion as elsewhere. Our paper, analyzing U.S. state-level data, is premised on the complementary point that competitive markets in religion as elsewhere may fail if there are externalities, public goods, or asymmetries in information. In our model, we hypothesize that perfect competition will foster forms of religion that fail to create positive externalities and that in turn engender doubts about religious faith. We test empirically the Iannaccone hypothesis that more religious competition/diversity engenders more religious faith and our contrary hypothesis using state-level data showing overall levels of religious competition among Protestants provokes less religious faith.