[Nonprofit, mutually owned insurance and banking organizations have significant market shares in the insurance and banking industries. A first step in a systematic study of these financial mutuals is to examine the reasons for their formation. Doing so provides empirical support for the view that these mutuals arose as an efficient means of addressing contracting challenges caused by aggregate uncertainties and moral hazard. A formal model with this property is presented. We argue that information asymmetries do more to explain the kinds of contracts offered by financial mutuals than do agency problems between owners, managers, and customers.]

Controversial econometric studies of mortgage data show that mortgage loan applications by some minorities are denied more frequently than are applications by whites with similar observable default risk factors. But recent evidence indicates that minority borrowers also default more frequently than whites with similar observable risk. This paper presents a simple equilibrium model of discriminatory credit rationing and finds parametric restrictions consistent with both these empirical findings. However, in this model, proposed antidiscrimination policies have surprising side effects. Thus, policy analysts accepting this empirical evidence should not expect to derive model-free conclusions about the effects of proposed policies. Journal of Economic Literature Classification Numbers: G21, G28, D63.

Nonprofit, mutually owned insurance and banking organizations have significant market shares in the insurance and banking industries. A first step in a systematic study of these financial mutuals is to examine the reasons for their formation. Doing so provides empirical support for the view that these mutuals arose as an efficient means of addressing contracting challenges caused by aggregate uncertainties and moral hazard. A formal model with this property is presented. We argue that information asymmetries do more to explain the kinds of contracts offered by financial mutuals than do agency problems between owners, managers, and customers.