I do not intend to pass any judgment on the current crisis that the Roman Catholic Church and the Pope are facing. My goal is to highlight some common problems that the Church is facing which also are encountered regularly by numerous other institutions and companies. They involve Type 1 and Type 2 errors, moral hazard and reputation.

Let me start by making the reasonable assumption that every group (whether demarcated by race, religious belief, nationality, language, etc.) has the same proportion of its members who are “sexual deviants”. I assume that most of us would agree that sexual deviants should include pedophiles, rapists, and those who engage in bestiality, incest and necrophilia. I doubt that we would get agreement, nor should we, for other types of sexual activities, especially if consulting adults are involved.

These assumptions imply that the Roman Catholic Church, like every other religious organization, non-religious organization and company, will have “job applicants” that include a very small number of sexual deviants. Hence, the Church faces both Type 1 and Type 2 errors in its hiring policies and decisions.

In this example, the Type 1 error involves hiring a sexual deviant – someone who is not qualified to be hired by the Church. The Type 2 error involves not hiring a person who is not a sexual deviant, but is believed to possess such characteristics; in other words, not hiring someone who is qualified for the job.

It is not possible to reduce both errors to zero – it might be too costly to do so and/or complete information might not be available regardless of the investments made to acquire as much background, psychological and personal information as possible. Errors are inevitable for the Church and for every other organization and company that hire workers.

So it should not come as a shock to find that a very small number of sexual deviants have become priests; that they were able to get through the screening process of the Church. I suspect that we might find a similar proportion of sexual deviants among the leaders of all religions.

Companies have implemented various policies to address Type 1 errors. Generally, they have taken the form of probationary employment periods before a new hire is made a permanent employee. Most companies also react quickly when they realize they have hired the wrong person. Morale and reputation can be destroyed quickly otherwise.

From what has happened, it appears that the Roman Catholic Church has erred in not reacting quickly to the discovery of a number of priests’ sexual deviant behavior. The Church does not seem to have had in place an effective and rapid response policy for dealing with Type 1 errors.

The absence of such a policy, and the preference to protect the reputation of the Church by transferring such people around and not weeding them out from among the ranks of the religious leaders, the overwhelming majority are most likely the right types to serve in their capacities within the Church, create a moral hazard for the Church.

If a sexual deviant knows that he is more likely to be hired by the Church and be retained by the Church even after his behavior has been discovered, then economic theory predicts that the Church will attract a disproportionately larger share of sexual deviants as job applicants. Thus, sexual deviant behavior is likely to be more prevalent among priests than in other jobs, not because of Roman Catholic principles, but because of the moral hazard implicit in the hiring and retention policies of the Church.

The moral hazard created has come back to tarnish the reputation of the Roman Catholic Church. In this respect, the Church has fallen into the trap of other organizations and companies that have placed greater weight on the short run and ignored the enormous longer-term reputational consequences. Consider Toyota, Lehman, Enron, Ford and the Pinto, etc.

Reputation is very important, yet very fragile. The Church is discovering this.

The opinions expressed in this blog are personal and do not reflect the views of either Global Brief or the Glendon School of Public and International Affairs.