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Social preference and group identity in the financial cooperative

Author

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  • Christian Ewerhart
  • Robertas Zubrickas

Abstract

We model the financial cooperative as an optimal institution sharing liquidity risks among agents with social preference and group identity. Stronger social concerns imply objectively better (worse) conditions for borrowers (depositors). Testing the model, we find that, indeed, deposit and loan rates offered by U.S. credit unions between 1995 and 2014 co-moved with (i) the number of members, and (ii) the common bond. Our theory explains how cooperatives coexist with banks, and why they have tended to be more resilient. However, the analysis also suggests that financial inclusion and advantages in resilience might quickly evaporate as membership requirements get diluted.

Suggested Citation

  • Christian Ewerhart & Robertas Zubrickas, 2019. "Social preference and group identity in the financial cooperative," ECON - Working Papers 332, Department of Economics - University of Zurich.
    • Handle: RePEc:zur:econwp:332
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    File URL: https://www.zora.uzh.ch/id/eprint/173917/1/econwp332.pdf
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    More about this item

    Keywords

    Social preferences; group identity; liquidity insurance; cooperative banking; credit union; common bond; bank competition; resilience;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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