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Cream Skimming, Dregs Skimming, and Pooling: On the Dynamics of Competitive Screening

  • Diderik Lund
  • Tore Nilssen
Original Paper

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.

Keywords

insurance market pooling equilibrium cream skimming 

JEL Classifications

D82 G22 L14 

Copyright information

© The Geneva Association 2004

Authors and Affiliations

  • Diderik Lund
    • 1
  • Tore Nilssen
    • 2
  1. 1.Department of EconomicsUniversity of OsloOsloNorway
  2. 2.Department of EconomicsUniversity of OsloOsloNorway

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