Religious Identity, Contracts, and Hold-Up Problems

Abstract

This paper shows that religion can substitute for contractual safeguards in human capital transmission. Using over 50,000 apprenticeship contracts from Venice (1575–1775), I find that masters with strong religious identities were less likely to demand third-party guarantors, front-load training costs, and defer payment. Exogenous variation in masters' religious identities comes from differential pre-birth exposure to earthquakes. Evidence from apparitions of the Virgin Mary, a regression discontinuity around Pentecost, and heterogeneity analyses points to three complementary mechanisms: beliefs in supernatural monitoring, religious norms, and religious parochialism. Despite greater exposure to apprentice hold-up, religious masters did not experience higher early-exit rates.