Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
We develop a unified model of the issuer’s decisions that takes into account both mechanism design and adverse selection risk. The model enables us to determine the optimal amount of information gathering prior to setting the offer price, and to understand what does and does not cause underpricing. The flexibility to allocate securities between a pool of investors who provide pricingrelevant information and investors who do not provide information is key to controlling underpricing. Policies that guarantee a minimum allocation to investors in the pool result in underpricing; policies that cap the allocations to such investors do not. The optimal number of investors in the pool, and thus the amount of information acquired, generally increases with the riskiness of the issue. However, this relation breaks down if pool members are guaranteed minimum allocations. Copyright Oxford University Press 2006