In Stein's (2004) model of delegated asset management, redemption rights permit earlier liquidation of uninspired managers but can induce inspired managers to avoid higher-return uncertain-convergence trades; depending on parameters, the control benefit can either outweigh or be outweighed by this investment-horizon cost.

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Overall, the two examples suggest that competition among funds can lead to an amount of open-ending that is excessive from investors' perspective, but not necessarily so. In the first example, open-ending makes inspired managers so cautious that they almost completely shun the UC asset. The negative effect on their returns thus overwhelms the gains associated with being able to liquidate uninspired managers. In the second example—where the short-run downside risk of the UC asset is not as severe open-ending does not induce quite so much caution, so the tradeoff goes in the other direction. In the latter case, allowing funds to compete on the dimension of organizational form has the sort of welfare consequences that one might normally expect. That is, it makes the fund managers themselves worse off, but it benefits investors.

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Observe that, from investors’ perspective, the welfare comparison turns on a simple tradeoff. On the one hand, open-ending allows for the early liquidation of uninspired managers—this yields an expected benefit of $(1 - pq)(L - K)$ . On the other hand, open-ending forces inspired managers to invest too cautiously, thereby lowering their expected returns. Importantly, these are the only two factors. In equilibrium, open-ending does *not* confer any benefit in terms of improving the quality of the managerial pool. This is so even though the race towards an open-end form is motivated by an out-of-equilibrium desire on the part of good types to separate themselves from the pack. **Example 1:** Set $R^{UC} = 3.0$ ; $R^{SC} = 1.46$ ; $L = 0.95$ ; $K = 0.60$ ; $x = 0$ ; $\gamma = 0.1$ ; $\alpha = 0.05$ ; $z = 0.1$ ; $m = 3$ ; $T = 5$ ; and $p = q = 0.5$ . It is easy to check that all six sufficient conditions, (1)-(4) and (7)-(8), are satisfied. Thus the equilibrium is one in which all funds are open-end, and inspired managers invest a fraction $\theta = 0.95$ of their portfolios in the SC asset. In this equilibrium, investors earn an expected gross return of 1.10 for every dollar invested, inspired managers get private benefits of 0.501, and uninspired managers get private benefits of 0.10. By contrast, if there were a prohibition on open-ending, investors would earn an expected gross return of 1.20, inspired managers would get 0.525, and uninspired managers would get 0.50.