Capacity, Patronage, and Exit from Mutual Credit

Georgy Lukyanov

No 25-1676, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: Member-owned lenders pool project returns and rebate surplus as patronage, insuring borrowers but tying membership value to pool composition. We study a capacityconstrained mutual alongside competitive market debt. Market access initially complements the mutual by financing rationed borrowers. Once capacity is broad enough, however, high-return members prefer individual debt to subsidizing the common pool and exit. Their departure frees capacity for low-return members but destroys risk sharing. Market access therefore raises welfare at low capacity and lowers it near full capacity: cream-skimming begins strictly before it becomes harmful. The mechanism survives incomplete pooling.

Keywords: Bank–bond choice; Collateral and enforcement; Liquidation efficiency; Creditor coordination; Adverse selection; Financial stability. (search for similar items in EconPapers)
JEL-codes: D82 G21 G32 G33 K22 (search for similar items in EconPapers)
Date: 2025-10, Revised 2026-10
New Economics Papers: this item is included in nep-cfn and nep-fdg
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:131006

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