We posit that screening IPOs requires specialized labor which, in the short run, is in fixed supply. Hence, a sudden increase in demand for IPO financing increases the compensation of IPO screening labor. Increased compensation results in reduced screening which encourages sub-marginal firms to enter the IPO market, further increasing the demand for screening labor and thus its compensation. The model's conclusions are consistent with empirical findings of increased underpricing during hot markets, positive correlation between issue volume and underpricing, negative correlation between issue volume and information production, and with tipping points between hot and cold markets characterized by discontinuous jumps in volume, underpricing, and issue quality. Finally, the model makes sharp and so far untested predictions relating IPO market conditions both to the fundamental values of IPO firms and to the returns to investment banks and investment banking labor.JEL Classification Codes: G20, G24; Keywords: IPO, underpricing, labor constraint † We wish to thank Walid Busaba, Mike Fishman, Jie Gan, Jon Garfinkel, Anand Goel, Vidhan Goyal, Gerard Hoberg, Yrjo Koskinen, Erik Lie, Ji-Chai Lin, Tim Loughran, Allen Michel, Jacob Oded, Gordon Phillips, Thomas Rietz, Harley "Chip" Ryan, Jay Sa-Aadu, Paul Schultz, Ann Sherman, Mark Taranto, Xianming Zhou, seminar participants at Baruch College, Boston University, DePaul University, Louisiana State University, MIT, Michigan State University, Notre Dame University, University of Iowa, University of Maryland, University of Michigan, University of Minnesota and the University of Western Ontario, as well as the discussant and participants at the 2005 City University of Hong Kong Corporate Finance and Governance Conference for their valuable comments and suggestions. Special thanks are extended to the Editor, Matthew Spiegel, and two anonymous reviewers for very detailed and insightful comments. The second author, Thomas Noe, would also like to acknowledge the generous support and assistance of the Sloan School at MIT, where he was a visiting scholar during the period in which much of the work on the manuscript was completed. All remaining errors are ours.