THE FREE-RIDER PROBLEM AND THE MODERN-DAY CHURCH:
AN ANALYSIS FROM A PRIVATELY-PROVIDED PUBLIC GOOD
PERSPECTIVE
NATHANAEL J GLUBISH*
I. INTRODUCTION
Churches as Public Goods
The free-rider problem, as described by economists, permeates
the realm of public goods and even plagues the church. The church
has many parallels and similarities to public goods. As with most public goods, churches are not by any means pure public goods, as they
do not perfectly satisfy the necessary characteristics of being non-rival
and non-excludable in consumption. However, James Buchanan
argues about these requirements in “The Demand and Supply of
Public Goods” by stating “no good or service fits the extreme … definition in any genuinely descriptive sense. In real-world fiscal systems, those goods and services that are financed publicly always
exhibit less than such pure publicness” (Buchanan 1968: 49). Rather,
it is because the church exhibits traits that satisfy these elements to a
reasonable extent that we justify an analysis from a purely public good
perspective. For example, once a church building is constructed, the
staff is on payroll and the programs are in place, the marginal cost to
the church for another person's consumption of its services is nearly
zero. However, once the church building is filled to capacity and the
staff members have no room in their schedules to accommodate additional service, the element of congestion becomes a factor in the nonrival nature of the church. On the other hand, while exclusion of additional “consumers” is very possible (i.e. the church could simply close
its doors and limit services to specific members only) it is, in practice,
unlikely. The very nature of a church is to reach out to anyone who is
in need of the services it provides; to exemplify the teachings of the
Christian bible. In other words, it would be contradictory to the
church's purpose to exclude anyone's attendance or involvement.1
To assess the free-rider problem in the church, a case study of
Elim Tabernacle, one of 58 Pentecostal Assemblies of Canada
* Nathanael Glubish is a undergraduate student in Finance and Business Economics at the
University of Saskatchewan, Canada.
1. The following analysis proceeds from the standpoint of the Western Christian tradition. A
biblical example of the attitude that Jesus set for the Christian church is found in John 4: 7-26,
where He speaks with a Samaritan woman. His demonstration of kindness to her was rather
uncharacteristic of the local Jewish culture; traditionally Samaritans had been discriminated
against by the Jews.
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SASKATCHEWAN ECONOMICS JOURNAL
FIGURE 1: ELIM TABERNACLE AVERAGE SUNDAY MORNING
ATTENDANCE
1200
1080
1003
1000
872
800
740
Attendance
702
650
609
600
576
547
556
1993
1994
480
400
200
0
1992
1995
1996
1997
1998
1999
2000
2001
2002
Year
Source: Elim Tabernacle Annual Meeting 5 November 2002.
(PAOC), is conducted. Senior administrator Wes Carlisle stated at
Elim's latest annual meeting (November 5, 2002) that Elim has nearly
tripled in size over the last decade. According to Figure 1, average
Sunday morning attendance rose from 480 in 1992 to 1030 in 2002.
However, while Sunday morning's attendance on November 3, 2002
was at a year high of over 1300, Elim is 7.3% under-budget in
revenues this quarter (See Table 1). So what is the problem? With
three times the congregation size it should be a much lighter burden
per person to fund the church operations but this is not so. In fact,
while attendance has increased by nearly 2.5 times over the past ten
years, real revenues (after inflation) have only doubled.2 In light of
TABLE 1: ELIM TABERNACLE - GENERAL TITHES - JULY
THROUGH OCTOBER 2002
Budget
July
August
September
October
Total
$63,700
77,900
98,900
82,900
$ 323,400
Actual
$58,803
71,700
105,608
63,605
$ 299,716
Surplus (Deficit)
($4897)
(6200)
6708
(19,295)
$
Source: Elim Tabernacle Annual Meeting, 12 November 2002
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THE FREE-RIDER PROBLEM AND THE CHURCH
3
these statistics, an analysis from a pure public good perspective will
provide valuable insight into how individual preferences and market
incentives affect the action of church members and adherents and help
the church leadership to better understand the collection patterns.
II. DEFINING THE FREE-RIDER PROBLEM
Free-Riders Explained
The Samuelson condition for efficient provision of a pure public
good is to provide the quantity of a good where the sum of all individuals' marginal rates of substitution for the good is equal to the cost of
the good.3 So if a group of individuals is collectively willing to pay
for the good, then the good should be provided. The problem arises
when enough individuals are involved that one can reasonably assume
the good will be provided at a desirable level regardless of their
personal contribution. In this case, individuals have an incentive to
misrepresent their preferences for the good and to contribute less than
they would normally be willing to pay. By observing the resulting
shortfall of funds, one can intuitively agree with what Rosen states:
the free-rider problem leads to a less than efficient quantity provided
of a public good (Rosen 2001: 60). James Buchanan (1965) describes
this inefficiency and gives us some intriguing insight into the motivations for individual choices and particular market outcomes relating to
the effects of the free rider problem. Accordingly, for churches such
as Elim Tabernacle whose revenues come primarily from the
donations of their adherents, the free-rider problem is an ever-present
hindrance to providing a socially optimal level of services.
Elim Tabernacle's Background and Structure
Elim was founded in 1917, and is entering its 86th year of ministry in Saskatoon. Elim is the largest affiliate of the Pentecostal
Assemblies of Canada (PAOC) in Saskatchewan and it continues to
grow; since its inception, Elim has relocated twice, and attendance has
nearly tripled in the past ten years alone. In 1992, the average attendance on a Sunday morning was 480. The most recent data available
from church administrator Wes Carlisle shows that the average attendance for the year ending in June of 2002 was 1030. Even more
2. Revenue figures were taken from Elim Tabernacle's 1993 and 2002 Annual Reports, and
adjusted for inflation using the average inflation rate for SK found in Table A.1 in the
Appendix.
3.
Σ
mrsi = c
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SASKATCHEWAN ECONOMICS JOURNAL
recently, on November 3, 2002 Elim had over 1300 people in attendance. Elim's Senior Pastor, Marvin Wojda, has been a minister for 22
years, ten of which have been with Elim. He notes that November and
December are very strong months for attendance, typically increasing
the annual average. Accordingly, 2002's average attendance is expected to be higher than the 1030 recorded up to June. So as Elim experiences a period of sustained growth, senior leadership plans for the
future and hopes to anticipate the future needs of the community.
Elim currently employs six full-time and two part-time pastors
who oversee the various areas of ministry in the church. In addition,
Elim has full-time positions for the administrator and the bookkeeper,
two part-time receptionists, as well as one full-time and two part-time
caretakers. Elim hosts a myriad of programs for all ages, including a
youth church on Fridays for young people in grades seven to twelve,
kids' church on Sundays for children up to grade six, and a young
adult/ young married program on Mondays. These are all in addition
to the regular services for the congregation every Sunday. Because the
building cannot comfortably seat the average Sunday morning attendance that is now regularly over 1000, Elim schedules three identical
services in the morning and one in the evening to ease the logistical
strain caused by large crowds. Nevertheless, the building is fully
employed nearly every weeknight with meetings, choir and music
practices, and other events.
Some programs cannot function efficiently because the facilities
are too limited to support the necessary equipment or staging. For
example, every Thursday night a few volunteers spend several hours
setting up the sound equipment, staging, and seating arrangement necessary for the Friday night youth church in the gymnasium because it
is used throughout the week for other functions and the equipment
cannot be left in place. Consequently, several volunteers must also
pack up the equipment every Friday night following the service.
Other events that Elim hosts each year include weddings, funerals, and special events. In addition to the programs it hosts in the
building, Elim contributes to the PAOC Saskatchewan District Office,
and supports missionaries in Ethiopia, China, Thailand, Estonia,
Romania and Columbia.4
4. See Elim Tabernacle's 2002 Annual Report for more details.
5. Interest income accounts for most of the other income.
6. Under the assumptions of identical preferences the tithing is interpreted as the constant
(optimal) income share devoted to church services, although higher donations in absolute
terms does not necessarily translate into a proportional rise in the volume of services consumed.
7. Tithes and undesignated offerings were $1,002,926 and other offerings were $48,827 (2002
THE FREE-RIDER PROBLEM AND THE CHURCH
5
Elim's Current Financial and Demographic Structure
Elim receives the majority of its funding from collections or
tithes from its congregation.5 While a measure of the disparity
between individual donations would be a useful indicator of the magnitude of the free-rider problem, records of individual donations are
generally not, and indeed should not be, made public. However, one
can alternatively consider the discrepancy between aggregate contributions and revenues based on the expected average tithing.6 The
tithe principle dates back to biblical account of Abraham. Gen 14:20
records that Abraham gave a tenth of all he owned to a priest of God.
Later, in Lev 27:30-33 the author writes that “every tenth animal”
belongs to God. These passages set the beginning framework for what
Christians today call tithing. According to Wojda, it is generally interpreted that Christians are to give ten percent of their incomes back to
God (i.e. to their local/home church).
For accounting purposes, Elim's fiscal year end is June 30. The
2002 annual report shows that tithes received during the year totaled
$1,051,753.7 This is an increase of 20% over 2001 tithe receipts, and
is just over double the $408,824 received in 1992 after accounting for
inflation.8 However, the average donation per person is only $934 for
the year9 which, although it is very close to the provincial average
charitable donation, seems significantly lower than a tithe according
to what the donors' incomes should be. Intuitively, we can begin to
see in monetary terms that there is a problem here. We will analyze
this in more detail in How Big is the Problem?
Elim's general expenditures for 2002 total $993,090. More than
half the total ($505,357) was spent on employee salaries and benefits.
This figure should increase for 2003 as two full-time pastors and a
part-time pastor were recently hired. Administration and operation
expenses totaled just under $250,000 while repair and maintenance to
the facilities cost $118,359. The balance of $119,812 funded the
various programs run throughout the year, including the youth and
kids departments. In addition to general expenditures, Elim also spent
$73,000 to purchase a strip of land on 8th Street adjacent to its existing property, as well as $110,000 to replace its existing furnaces and
air conditioners and $75,000 to upgrade its carpets, chairs, sound and
Annual report).
8. Average inflation in SK for the past 10 years has been 2.5% (Table A.1). $408,824 received
in 1992 equals: $408,824 x 1.02510 = $523,329 in 2002 dollars, or just under half of the tithe
receipts for 2002.
9. The tithe base represents the number of people who call Elim their church home - in other
words, it is Elim's core members and adherents who could be expected to tithe. A derivation
of this figure will follow shortly.
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SASKATCHEWAN ECONOMICS JOURNAL
lighting equipment and computers. All of these expenditures were
necessary to continue operations as usual, but will decrease the cost of
planned future expansions.
It is worthwhile to note that the government effectively subsidizes the church to an extent, as Elim is a registered non-profit
corporation. As a result, Elim issues tax receipts to donors for income
tax purposes. As of this writing, the Canadian Customs and Revenue
Agency (CCRA) allows 16% of the first $200 and 29% of any additional contributions (to a maximum of 75% of the individual's gross
income) for non-refundable federal income tax credits.10 The provincial rates are 11.25% and 15.5% respectively. Following these tax
credit guidelines, the approximate effective subsidy for Elim in 2002
totals almost $430,00011 for Federal and Provincial combined using
the appropriate marginal tax rates. This subsidy works like a conditional matching grant because the more the congregation gives to the
church, the higher the tax credit issued by the government. However,
for my analysis I will ignore the effects of this subsidy, as it is not
direct revenue to the church, but rather a refund or tax credit to the
donor.
Based on the tithe revenues of $1,051,735, one might venture to
say that the income base of those who attend and support Elim is just
over $10 million. However, we will see upon further analysis that a
more plausible estimate exceeds triple that amount. With that figure
in mind, it becomes clear that not everyone is tithing, the resulting
lack of funds restricting the programs and services that Elim can offer.
And considering that the average attendance is growing and will soon
triple 1992 levels, Elim's leadership recognizes a serious need to
expand its facilities.12
Elim is home to 326 active members and 55 inactive members.13
Inactive members consist mostly of shut-ins, snowbirds and those who
have moved but not yet found a new church home.14 Members are eligible to vote on any major decisions for the church, including election
of the Board of Deacons. The Board members are all volunteers who
work with the Senior Pastor (Wojda) to handle day-to-day decisions as
well as handling the budgeting with Administrator Wes Carlisle.
10. See the Canadian Tax Guide for more information.
11. Using the tithe base of 1126 as a starting point for how many people were issued tax
receipts during 2002, the average donation per "tither" was $934.
12. The seriousness of the problem would depend on the degree to which members rely upon
the church to provide, in addition to regular weekly services, other philanthropic activities.
13. See 2002 Annual Report for further demographic statistics.
14. Shut-ins are people who cannot leave their home because of illness or physical condition.
Snowbirds are people who live in a more tropical climate for part of the year (usually during
THE FREE-RIDER PROBLEM AND THE CHURCH
7
Those who have not formalized their membership with Elim represent
the remainder of the congregation. On any given Sunday, only half
the congregation attends the morning services, says Wojda. He adds
that approximately 2500 people are listed in the church records as current attendees (only a small portion of the congregation are actually
members). Wojda estimates that about 800 of the non-member adults
are regular attendees who call Elim their home church. Elim's congregation represents a vast diversity of ages, occupations and family
structures. Wojda estimates that approximately 60% of regular attendees are married couples, and the remaining 40% is split evenly
between single men and women. Because the University of
Saskatchewan is located in Saskatoon, Elim has a large proportion of
single young adults and young married couples in its congregation.
Wojda also mentions that approximately twenty doctors attend his
church, or nearly 1% of the adult congregation, which is higher than
the provincial average of doctors per capita.15 Wojda adds that Elim
is home to a significant amount of educators and professors. He
believes that the congregation is a good representation of provincial
norms, and that perhaps the average income would be slightly higher
among those attending Elim compared to the provincial average.
Relevant National Statistics16
Inflation in Canada has averaged 2.01% in the past 10 years; in
Saskatchewan that figure is 2.50%. The average earnings in 1999 for
Canadian men and women were $35,169 and $22,535 respectively
(see Table 2). After accounting for inflation, the 2002 dollar estimates
are $37,333 and $23,921. The average income for families in
Saskatoon in 1995 was $53,196 (see Table 3), which in 2002 dollars
would be $63,233 and $31,617 per worker (assuming two income
earners per family). In 2000, 25.53% of Canadians who filed tax
returns donated $5.4 billion to charities. In Saskatchewan, 27.31% of
those who filed tax returns donated $176 million. This amounts to an
average donation per person of $985.91 in Canada, while the average
for Saskatchewan donors was $931.61 (Table 4).
the winter season).
15. There are 1530 doctors in Saskatchewan, or about 0.15% of the population of almost 1
million people (Mandryk).
16. All these statistics are from the Statistics Canada Website www.statcan.ca. I use the average inflation figures in Table A.1 of the Appendix to bring all figures to 2002 dollars. For figures stated as Canadian averages, I use the Canadian average inflation rate, while for
Saskatchewan figures I used the Saskatchewan average.
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SASKATCHEWAN ECONOMICS JOURNAL
Table 2: Average Annual Earnings by Sex
Year
All Earners
Women
Men
1995
1996
1997
1998
1999
$21,449
$21,244
$21,380
$22,384
$22,535
$32,988
$32,901
$33,700
$34,769
$35,169
Source: Statistics Canada Website
10 November 2002.
TABLE 3: FAMILY INCOME IN SELECTED
CANADIAN CITIES
City
Average Household
Income (1995 dollars)
S askatoon
53,196
Calgary
63,586
Edmonton
56,090
Vancouver
60,438
Toronto
64,044
Ottawa
64,243
Quebec
52,570
Winnipeg
53,759
Regina
56,849
Source: Statistics Canada Website 10 November
2002.
9
THE FREE-RIDER PROBLEM AND THE CHURCH
TABLE 4: CHARITABLE DONATIONS BY CANADIAN PROVINCE IN 2002
Taxfilers
Canada
Newfoundland and Labrador
Prince Edward Island
Nova Scotia
New Brunswick
Quebec
Ontario
Manitoba
S askatchewan
Alberta
British Columbia
Yukon
Northwest Territories
Nunavut
Donors
Number
Number
Percentage
of taxfilers
21,611,830
5,516,420
25.53%
383,130
98,370
658,460
545,100
5,406,500
8,083,210
803,810
81,140
26,550
159,400
127,930
1,223,120
2,275,620
232,610
21.18%
26.99%
24.21%
23.47%
22.62%
28.15%
28.94%
694,870
189,770
27.31%
2,129,160
2,751,930
19,500
24,420
13,370
532,790
658,260
3,670
3,950
1,620
25.02%
23.92%
18.82%
16.18%
12.12%
TABLE 4 CONTINUED
Donation
Provincial Amount Median
(thousands $)
$
Canada
$ 5,438,672
$190
56,092
20,312
124,561
112,365
556,820
2,727,379
237,107
290
300
250
260
100
230
240
S askatchewan
176,790
270
Alberta
British Columbia
Yukon
Northwest Territories
Nunavut
632,341
787,187
3,012
3,179
1,527
230
230
180
160
340
Newfoundland and Labrador
Prince Edward Island
Nova Scotia
New Brunswick
Quebec
Ontario
Manitoba
Average
$
Donors' Gross Income
Median
$
$ 985.91
691.30
765.05
781.44
878.33
455.25
1,198.52
1,019.33
931.60
1,186.85
1,195.86
820.71
804.81
942.59
Source: Statistics Canada Website 10 November 2002.
$ 39,300
30,600
31,700
35,400
33,400
37,800
42,100
34,400
33,600
40,600
39,400
50,200
63,200
57,600
10
SASKATCHEWAN ECONOMICS JOURNAL
So How Big IS the Problem?
It was pointed out above that the actual income base of the congregation was over $30 million. In this section I plan to explain the
assumptions I made in my calculations of this estimate. My motivation for calculating these figures is to find out what Elim's revenues
from tithes should be if the estimated tithe base actually tithed 10% of
their incomes. The balance between what the revenues should be and
what the actually are equals the monetary free rider cost to Elim.17
For this analysis we need to establish a base congregation that
can be expected to tithe. For our purposes an appropriate congregational tithe base is 1126 people, comprising the 326 active members
and Wojda's estimate of 800 committed regular attendees who have
not formalized their membership. These 1126 people can be broken
down by the 60-40 ratio mentioned earlier, into 338 couples and 225
single men and 225 single women. The total income of the tithe base,
then, is simply the sum of the product of these numbers and their corresponding average income described in the previous section.
According to these assumptions, the income of Elim's tithe base is
$35,154,609, which should provide tithe revenues to Elim of $3.5 million. Given that actual tithes measured just under $1.1 million, the
TABLE 5: FREE RIDER COST TO ELIM TABERNACLE IN 2002
Tithe Base
Number
60% Couples
20% Single Men
20% Single Women
675.6
225.2
225.2
Total
1126
Corresponding Average
Annual Earnings
$63,233.33
$37,332.60
$23,921.36
Wage Base
$21,360,217.98
$8,407,302.01
$5,387,089.50
Total Wage Base: $35,154,609.49
Expected Tithes at 10% of Wage Base:
Actual Tithes:
Free Rider Cost:
$3,515,460.95
$1,051,753.00
$2,463,707.95
Note: annual earnings are adjusted for inflation, and the wage base for couples was calculated
for 337.8 couples.
17. There are a few adjustments that I will address later on.
18. See Table 5 for the calculations. Essentially I broke down the tithe base of 1126 people to
60% couples and 40% singles (equal men and women). From there I used the family income
average from Table 3 to calculate the income base for couples, and the single income earner
THE FREE-RIDER PROBLEM AND THE CHURCH
11
free rider cost to Elim is approximately $2.5 million a year!18
Looking a Little Deeper
A number of factors could result in adjustments to this estimate
either up or down. One factor that could change our results is that
some of Elim's members give to more than one church or ministry.
These people may very well be tithing 10% to Christian organizations
overall, while our model assumes that this 10% is solely donated to the
individual's local church. Our numbers are also contingent upon our
assumption that the average incomes for Saskatoon families and
Saskatchewan singles are representative of the incomes of Elim's core
congregation. As already mentioned, Elim has an inordinately high
number of physicians, educators, and professors. Even with the large
University crowd,19 the average incomes at Elim likely exceed the
national and provincial averages, which would lead to a higher income
base, expected tithe, and free rider cost. Another possible explanation
for some of the difference between the expected and actual tithe figures is that some individuals may just not be able to afford to tithe. In
today's society of easy consumer credit, often at extremely high interest rates, it is difficult not to overextend oneself into debt.20 If a family is living beyond their means, then perhaps the 10% tithe they are
not contributing is not because they choose not to, but because they
simply cannot afford to make the donation. Cases like this would
decrease the calculated free rider cost. Nevertheless, even after
adjusting the initial $2.5 million figure for these alternative deficiencies (or extras in the case of higher average incomes), the difference
between expected and actual tithes is still expected to be large.
III. RESOLVING THE PROBLEM
What Now?
Elim can reasonably conclude that the free rider problem has a
monetary cost that results in a negative effect on its tithe revenues, in
turn causing a less than socially optimal level of service to be provided. By targeting specific causes of disparities between expected and
actual tithe revenues, Elim can increase commitment and involvement
of its members and adherents, and improve revenues and increase
services. For example, to reduce the problem of people not being able
to afford to tithe, Elim can offer free expert financial planning.21
averages from Table 2 to calculate the income base for singles. The sum of the income bases
equals the tithe base, of which 10% equals the expected tithe of $3.5 million.
19. University students are typically in a lower income bracket while they study.
20. E.g. TD Green Visa charges an 18.99% Annual Percentage Rate.
21. The PAOC has done this in the past; Elim could implement such a program.
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SASKATCHEWAN ECONOMICS JOURNAL
With proper budgeting and investment plans, most people will be better off financially and in the long-term be better positioned to tithe.
Regardless of net worth and income level, there will always be
people who do not tithe. If one person dislikes the style of music on
Sunday mornings, he may stop tithing. If another person cannot find
a program she enjoys, she may not feel a need to contribute funds.
One solution is to work carefully to understand the individual needs
and desires of the congregation and to try to be representative of
everyone's tastes. Elim should choose music for the young and the
old, offer meals and events for those who wish to fellowship, and provide training and mentoring for those who want to learn. If everyone
is plugged in somewhere, they will feel pride and ownership of Elim.
Such realization of pride and ownership forms the basis of collectively supporting one's church.
APPENDIX
TABLE A.1: CONSUMER PRICE INDEX ON ALL GOODS
1992 (Base Yea r)
C anada
100
2002
120.1
Av erage in flation
2.01%
N ewfo u n d lan d & Lab rad o r
100
118.1
1.81%
Prin ce Ed w ard Is lan d
100
119.2
1.92%
N o v a Sco tia
100
121.2
2.12%
N ew Bru n s wick
100
120.1
2.01%
Q u eb ec
100
116.3
1.63%
O n t ario
100
121.2
2.12%
M an it o b a
S a sk atch ewan
100
100
123.9
125.0
2.39%
2.50%
A lbert a
100
125.9
2.59%
British Columb ia
100
118.8
1.88%
Source: Statistics Canada Website, November 2002.
THE FREE-RIDER PROBLEM AND THE CHURCH
13
REFERENCES
Browning and Zupan. (2002). Macroeconomics Theory and Applications. 7th
Edition. New York: John Wiley and Sons.
Buchanan, James. (1968). The Demand and Supply of Public Goods.
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Parkin and Bade. (2000). Microeconomics Canada in the Global
Environment. 4th Edition. Toronto: Addison Wesley Longman.
Rosen, Dahlby, Smith, and Boothe. (2003). Public Finance in Canada. 2nd
Edition. Toronto: McGraw-Hill Ryerson.
Samuelson, Paul. (1962). Problems of the American Economy. London:
Athlone Press.
Articles
Mandryk, Murray. (2003). “Doctors face uphill PR battle.” Saskatoon: Star
Phoenix B12. May 9.
Data and Other Sources
Carlisle, Wes. ‘Annual Meeting.’ Elim Tabernacle, 5 November 2002.
Elim Tabernacle, 2002, Annual Report, Saskatoon.
Elim Tabernacle, 1993, Annual Report, Saskatoon.
Statistics Canada. ‘Average Earnings by Sex and Work Pattern.’ 25 October
2001/10 November 2002. <http://www.statcan.ca/english/Pgdb/
labor01a.htm>.
Statistics Canada. ‘Charitable Donors.’ 8 November 2002/10 November
2002 <http://www.statcan.ca/english/Pgdb/famil90.htm>.
Statistics Canada. ‘Selected Income Statistics for Individuals, Families and
Households.’ 5 November 2002. 10 November 2000 <http://www.stat
can.ca/english/Pgdb/famil61a.htm>.
Wojda, Marvin. Interview with Nate Glubish. Elim Tabernacle, 12
November, 2002.