Credit union governance and survival of the cooperative form

Credit unions are cooperative financial institutions that typically operate on a one-member/one-vote governance rule. This paper demonstrates that suc h a governance rule may enhance the survival of such organizational forms i n the face of adverse incentives created by accumulated financial surpluses and identifies factors that may prompt conversion to a joint-stock form. T he analysis is based on noting that current members collectively have "inhe rited" accumulated surpluses of the cooperative from past members. Older me mbers have an incentive to extract maximum personal private benefit from th at inheritance by voting to convert from a cooperative to a joint stock com pany, even though such an outcome may be socially suboptimal. A simple over lapping generations model is used to develop a "sustainability constraint," which must be met if conversion is not to occur and examine how a one-memb er/one-vote governance rule contributes to the survival of the institution in a cooperative form.