The Economics of Religious Indulgences

We present a model of the Catholic Church as a heterogeneous club managed by a specialized hierarchical agency, that pursues the enlargement of the club within given constraints. Religious indulgences are introduced as a way of inducing a self selection of members, based on their attitudes towards the risk of dying without having been pardoned for their sins. Highly risk-averse members do not relax their moral behavior even if indulgences are available. Less risk-averse members prefer indulgences, but this choice is only beneficial to the Church as long as they avoid dropping out and it secures revenue. In fiscal and criminal law there are institutions (amnesties) that parallel religious indulgences: here too a derogation to a general rule may be justified on efficiency ground