Scandinavian Working Papers in Economics
Working Papers,
Copenhagen Business School, Department of Economics
No 01-2003: Cream Skimming, Dregs Skimming, and Pooling: On the Dynamics of Competitive Screening.
Diderik Lund and Tore Nilssen
Additional contact information
Diderik Lund: Department of Economics, Copenhagen Business School, Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark
Tore Nilssen: Department of Economics, Copenhagen Business School, Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark
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 proÞtably detracted from the candidate pooling contract.
Keywords: Insurance; Insurance Companies; Transactional relationships; Reputation
24 pages, March 20, 2003
Full text files
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