confined to project initiation, I find that: (1) when agents expect a liquidity dry-up on such markets, they optimally choose … to self-insure through the hoarding of non-productive but liquid assets; (2) such a response has negative externalities … as it reduces ex-post market participation, which worsens adverse selection and dries up market liquidity; (3) liquidity …

liquidity over incentives. Optimal interventions with commitment call for large, long-term subsidies in excess of what is … required to restore liquidity. …

We analyze a novel feedback mechanism between market and funding liquidity that causes self-fulfilling liquidity dry … gain by resorting to outside liquidity sources and withhold assets from secondary markets. This leads to adverse selectrion … become mutually reinforcing. We compare different policy measures that can mitigate the risk of inefficient liquidity dry …