Working Paper

Pricing and dividend policies in open credit cooperatives

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.

Keywords: Credit unions; Prices; Dividends;

Status: Published in Journal of Theoretical and Institutional Economics, June 2002, 158(2), pp. 234-55

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2000

Number: 2000-008