Social Preference and Group Identity in the Financial Cooperative

University of Zurich, Department of Economics, Working Paper No. 332, August 2019

42 Pages Posted: 21 Sep 2019

See all articles by Christian Ewerhart

Christian Ewerhart

University of Zurich, Department of Economics

Robertas Zubrickas

University of Bath

Date Written: August 28, 2019

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.

Keywords: social preferences, group identity, liquidity insurance, cooperative banking, credit union, common bond, bank competition, resilience

JEL Classification: G21, D91, L31, G28

Suggested Citation

Ewerhart, Christian and Zubrickas, Robertas, Social Preference and Group Identity in the Financial Cooperative (August 28, 2019). University of Zurich, Department of Economics, Working Paper No. 332, August 2019, Available at SSRN: https://ssrn.com/abstract=3445343 or http://dx.doi.org/10.2139/ssrn.3445343

Christian Ewerhart (Contact Author)

University of Zurich, Department of Economics ( email )

Schoenberggasse 1
Zurich, CH-8001
Switzerland

Robertas Zubrickas

University of Bath ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

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