Negligence liability is our most basic form of safety regulation. It creates accident prevention and, as an unavoidable incident, insurance. When the insurance becomes too unmanageable, courts have eliminated negligence liability. The result is a gap in accident prevention.

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...