Pondering Souls for a New World

Okay, so I did some pondering this weekend on how I should handle souls in the campaign world I'm building.  The world is a divinely created flat world, set in a sphere (or maybe hemisphere) of divine force beyond which is the raging elemental chaos.  This means that the world is a closed system.  There are no other planets, solar systems, galaxies etc. (but there are other dimensions).  So then when it comes to souls, where do they come from and where do they go after mortal death?  I'm thinking that some main options are that:
- they recycle within the world (reincarnation);
- they go on permanently to some other divine dimension (let's call it ascension) and new souls are somehow created to replace them;
- they are dissolved and their raw energy is dispersed back into the world;
- or their previous personality is destroyed and the soul becomes a free-floating mote of divine energy.

I'm focusing for now of the first two explanations, both of which have certain ramifications.  In a recycle/reincarnation model if it is possible to destroy a soul, or for a soul to not complete reincarnation (say, in becoming a ghost), then gradually over the millennia the number of souls will decline and the living population of the world will decline.  In an ascension model the question of how new souls are created is very important.

I like the idea of souls ascending because it allows for choices made in life to influence one's eventual eternal fate.  Yes, you can have a karmic system for reincarnation where your past life choices influence your next life, but that's not quite as dramatic as ending up somewhere FOREVER after death.  Ascension of souls also allows for communication between the deceased and the living, via dreams, the services of a medium, temporary travel to that other plane, etc.  Such communication allows for great roleplay and plot building material.  With reincarnation you can only contact the recently dead or souls who are stuck outside the cycle for some reason.  With both models there is also an interesting period after death before the soul has been reborn or before it arrives at its final destination--things might happen to it during that time.

And what happens to souls which complete their ascension?  One model I'm considering, because it helps explain why large numbers of people might pledge themselves to an evil deity, is that the soul becomes a minor (or major) immortal follower of that deity.  So an evil priest can become a powerful demon/devil serving their master in the afterlife.

With both models there is also the question of alignment.  I will be using the classic D&D alignment system for this campaign.  I believe this system works well for the type of high fantasy genre games I will be running.  But are seeds of alignment "baked in" to the soul at its creation?  An interesting point, given that certain races and creatures are defined as having a typical alignment.  But at a minimum, there must be a way for player characters to change alignment over time as part of role playing in order to leave room for character development.  I'm leaving detailed exploration of alignment for later to concentrate on the fundamental reincarnation vs. ascension question.

But then, why can't both models coexist?  Good question.  For my world background I have the main First Peoples (humans, elves, dwarves) created by the ancient primal gods who originally created the world and then created its divine elemental dragon guardian deities, and its five nature deities (sun, moon, sea, sky, and earth).  The divine dragons later created immortal avatars of themselves in the world who in turn created the mortal dragons and the dragonborn.  The deities of earth, sky, and sea first created the animals of their respective realms and, much later, realm-specific intelligent races (such as merfolk in the seas).  The later-arriving Young Gods (the "Angels and Demons") created two semi-divine races, the aasimar and tielfings, through intimate interaction with members of the First Peoples.  So, some of these races could have souls which reincarnate and others souls which ascend, depending on their creators.

The existence of different creators also suggests that these various races/species could have different "flavors" of soul or different strengths of soul.  Would the soul of a dwarf, created by the primal elder gods, be of a different flavor/type and different strength than the soul of a squirrel created by the nature deities because the nature deities are of a lower power level than the elder gods?  I'm thinking that yes, there will be a difference of kind or degree.  This is where it all got even more complex and I'm busy making a lot of notes (I conceptualized best with pen on paper).  I need to work out the various ramifications of types and powers of souls to figure out the best combination which will please me intellectually and also drive cool storytelling and game play.