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The Economics of Not Knowing: A Symmetric Ignorance Theory of IPO Pricing

Author

Listed:
  • Michel Antoine Habib

    (University of Zurich; Centre for Economic Policy Research (CEPR))

  • Alexander Ljungqvist

    (Centre for Economic Policy Research (CEPR); Swedish House of Finance)

Abstract

We develop a unified framework in which IPO practices operate not to manage asymmetric information but to prevent it from arising. Costly information acquisition gives investors an option to pick and choose among offerings, forcing the underwriter to offer a discount. IPO practices lower the value of this option-by diminishing the quality, relevance, or payoff of investor information-and thereby reduce the discount required to deter information production. This information-prevention perspective offers a coherent explanation for otherwise disparate practices, resolves persistent empirical puzzles about IPO allocations, and yields new implications for cornerstone investors and the JOBS Act.

Suggested Citation

  • Michel Antoine Habib & Alexander Ljungqvist, 2026. "The Economics of Not Knowing: A Symmetric Ignorance Theory of IPO Pricing," Swiss Finance Institute Research Paper Series 26-03, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2603
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    Keywords

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    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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