In the mutual fund industry, there is a unique endogeneity between managers and investors. If a manager wants to lower fees in the hopes of attracting investors, the investors will not react unless they believe the manager will maintain low fees for a period of time. A binding contract is one...

Recent studies (e.g. Gruber (1996)) conclude that a subset of investors allocates away from funds with relatively worse prospects, and toward funds with better prospects. The implication for a given fund is that good prospects increase the density of performance-sensitive investors, and bad...