Prevention is better than cure : Precluding Information Acquisition in IPOs

We treat information acquisition by potential investors in IPOs asendogenous. With endogenous information, the critical question iswhy underwriters would allow investors to spend resources acquiringsuperior information intended solely to effect a wealth transfer. Weshow that institutional arrangements such as regulars, stabilization,short-selling constraints, and investment banking syndicates avoidsuch a wealth transfer by precluding information acquisition and theinformation asymmetry that would otherwise arise. We characterizethe resulting outcome as one of symmetric ignorance.