The Nordic Economic Policy Review is published by the Nordic Council of Ministers. This year's issue is part of the Danish presidency programme for the Nordic Council of Ministers in 2015. The review addresses policy issues in a way that is useful for in-formed non-specialists as well as for professional economists. All articles are commissioned from leading professional economists and are subject to peer review prior to publication. The review appears once a year. It is published electronically on the website of the Nordic Council of Ministers: www.norden.org/en. On that website, you can also order paper copies of the Review (enter the name of the Review in the search field, and you will find all the information you need).

We study a financial market adverse selection model where all agents are endowed with initial wealth and choose to invest as entrepreneurs or financiers, or not to invest. We show that often a lack of outside finance leads to the emergence of financial markets where availability of outside finance leads to autarky. We find that i) there exist Pareto-efficient and inefficient equilibria; ii) adverse selection has more severe consequences for poorer economies; iii) increasing initial wealth may cause a shift from Pareto-efficient to inefficient equilibrium; iv) increasing the proportion of agents with positive NPV projects causes a shift from inefficient to efficient equilibrium; v) equilibrium financial contracts are either equity-like or 'pure' debt contracts; vi) agents with negative (positive) NPV projects earn rents only in (non- )wealth-constrained economies; vii) agents earn rents only when employing pure debt contracts; and viii) removing storage technology destroys the only Pareto-efficient equilibrium in non-wealth-constrained economies. Our model enables analysis of various policies concerning financial stability, the need for sophisticated financial institutions, development aid, and the promotion of entrepreneurship.

Tiivistelmä: Työmarkkinauudistukset ja kiinteän valuuttakurssin kestävyys.

Tiivistelmä: Multihoming-ilmiö maksuvälineiden markkinoilla.