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Pricing and dividend policies in open credit cooperatives

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  • William R. Emmons
  • Frank A. Schmid

Abstract

This paper develops an integrated model of pricing and dividend policies in open credit cooperatives (those that do business with members and non-members on a non-discriminatory basis). We show that both the distribution of member preferences and the amount of non-member business the cooperative does influence its optimal pricing and dividend policies. For a fixed distribution of member preferences, the larger the fraction of business done by members, the smaller the optimal dividend and the larger the optimal pricing subsidy (hence, increasing demand). On the other hand, for a fixed fraction of member business, the greater the skewness of member preferences toward loan (deposit) business with the credit cooperative, the larger the optimal dividend and the higher (lower) the optimal loan (deposit) interest rate. Aggregate empirical evidence from the German cooperative banking sector supports a version of the latter prediction, namely, that in an increasingly depositor-dominated open credit cooperative, average deposit rates tend to fall as dividend payouts rise.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2000-008.

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Date of creation: 2000
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Publication status: Published in Journal of Theoretical and Institutional Economics, June 2002, 158(2), pp. 234-55
Handle: RePEc:fip:fedlwp:2000-008

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Keywords: Credit unions ; Prices ; Dividends;

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  1. Emmons, William R. & Schmid, Frank A., 1998. "Credit unions and the common bond," CFS Working Paper Series 1999/01, Center for Financial Studies (CFS).
  2. David Canning & Clifford W. Jefferson & John E. Spencer, 1999. "Optimal Credit Rationing in Not-For-Profit Financial Institutions," Harvard Institute of Economic Research Working Papers 1866, Harvard - Institute of Economic Research.
  3. Timothy Besley & Stephen Coate & Glenn Loury, 1992. "The Economics of Rotating Savings and Credit Associations," Boston University - Institute for Economic Development 24, Boston University, Institute for Economic Development.
  4. William R. Emmons & Willi Mueller, 1997. "Conflict of interest between borrowers and lenders in credit co- operatives: the case of German co-operative banks," Working Papers 1997-009, Federal Reserve Bank of St. Louis.
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