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

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Author Info
Lund, Diderik (Department of Economics, Copenhagen Business School)
Nilssen, Tore (Department of Economics, Copenhagen Business School)

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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.

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File URL: http://openarchive.cbs.dk/cbsweb/handle/10398/7596
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Publisher Info
Paper provided by Copenhagen Business School, Department of Economics in its series Working Papers with number 01-2003.

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Length: 24 pages
Date of creation: 20 Mar 2003
Date of revision:
Handle: RePEc:hhs:cbsnow:2003_001

Contact details of provider:
Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark
Phone: 38 15 25 75
Fax: 38 15 26 65
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Web page: http://www.cbs.dk/departments/econ/
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Related research
Keywords: Insurance; Insurance Companies; Transactional relationships; Reputation;

Other versions of this item:

Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Dionne, Georges & Doherty, Neil A, 1994. "Adverse Selection, Commitment, and Renegotiation: Extension to and Evidence from Insurance Markets," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 209-35, April. [Downloadable!] (restricted)
    Other versions:
  2. Parigi, Bruno M., 1994. "Self selection in a dynamic credit model," European Journal of Political Economy, Elsevier, vol. 10(3), pages 571-590, October. [Downloadable!] (restricted)
  3. Szpiro, George G, 1986. "Measuring Risk Aversion: An Alternative Approach," The Review of Economics and Statistics, MIT Press, vol. 68(1), pages 156-59, February. [Downloadable!] (restricted)
  4. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
  5. Asheim, Geir B. & Nilssen, Tore, 1996. "Non-discriminating renegotiation in a competitive insurance market," European Economic Review, Elsevier, vol. 40(9), pages 1717-1736, December. [Downloadable!] (restricted)
    Other versions:
  6. Stiglitz, Joseph E, 1977. "Monopoly, Non-linear Pricing and Imperfect Information: The Insurance Market," Review of Economic Studies, Blackwell Publishing, vol. 44(3), pages 407-30, October. [Downloadable!] (restricted)
  7. Nilssen, Tore, 2000. "Consumer lock-in with asymmetric information," International Journal of Industrial Organization, Elsevier, vol. 18(4), pages 641-666, May. [Downloadable!] (restricted)
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