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

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.

Author information

Affiliations

Authors

Rights and permissions

Reprints and Permissions

About this article

Cite this article

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

Download citation

Keywords

  • insurance market
  • pooling equilibrium
  • cream skimming

JEL Classifications

  • D82
  • G22
  • L14