Redemption Fees and Information-Based Runs∗

We study how the imposition of a redemption fee affects runs on financial institutions when investors are asymmetrically informed about fundamentals. Although the fee eliminates the first-mover advantage by internalizing the payoff externality and, therefore, discourages runs by informed investors, it also alters the information externality by influencing uninformed investors’ learning and may, thereby, either increase or decrease overall run potential. Additionally, the fee may create a last-mover advantage for the informed, resulting in a wealth transfer from uninformed to informed investors. These effects render the fee’s impact on welfare and the investors’ propensity to run preemptively ambiguous.