The economics of religious indulgences

We model the Catholic Church as a heterogeneous club managed by a specialized agency that pursues the enlargement of the club within given constraints. Religious indulgences induce the self selection of members, based on their attitudes towards risk. Highly risk-averse members do not relax their moral behaviour even if indulgences are available. Less risk-averse members prefer indulgences, but their availability is beneficial to the Church. In fiscal and criminal law there are institutions (amnesties) that parallel religious indulgences: here, too, a derogation from a general rule may be justified on the grounds of efficiency. * The authors wish to thank Mario Ferrero, Maurilio Guasco, Xavier Pandiello and two anonymous referees for their helpful comments on the first draft. Thanks also to Laura McLean for revising the English. The usual disclaimer applies.