Abstract
We discuss the existence of a pooling equilibrium in a two-period model of an insurance market with asymmetric information. We solve the model numerically. We pay particular attention to the reasons for non-existence in cases where no pooling equilibrium exists. In addition to the phenomenon of cream skimming emphasized in earlier literature, we here point to the importance of the opposite: dregs skimming, whereby high-risk consumers are profitably detracted from the candidate pooling contract.
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Lund, D., Nilssen, T. Cream Skimming, Dregs Skimming, and Pooling: On the Dynamics of Competitive Screening. Geneva Risk Insur Rev 29, 23–41 (2004). https://doi.org/10.1023/B:GEPA.0000032564.19797.21
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DOI: https://doi.org/10.1023/B:GEPA.0000032564.19797.21