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Department of Economics, Copenhagen Business School Working Paper Series, Department of Economics, Copenhagen Business School

No 01-2003:
Cream Skimming, Dregs Skimming, and Pooling: On the Dynamics of Competitive Screening.

Diderik Lund and Tore Nilssen

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 phenom-

enon of cream skimming emphasized in earlier literature, we here point

to the the importance of the opposite: dregs skimming, whereby high-risk

consumers are proŞtably detracted from the candidate pooling contract.

Keywords: Insurance; Insurance Companies; Transactional relationships; Reputation; (follow links to similar papers)

JEL-Codes: D82; G22; L14; (follow links to similar papers)

24 pages, March 20, 2003

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