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

Author

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  • Diderik Lund

    (Department of Economics, University of Oslo, P.O. Box 1095 Blindern, N-0317 Oslo, Norway, e-mail: diderik.lund@econ.uio.no)

  • Tore Nilssen

    (Department of Economics, University of Oslo, P.O. Box 1095 Blindern, N-0317 Oslo, Norway, e-mail: tore.nilssen@econ.uio.no)

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. The Geneva Papers on Risk and Insurance Theory (2004) 29, 23–41. doi:10.1023/B:GEPA.0000032564.19797.21

Suggested Citation

  • Diderik Lund & Tore Nilssen, 2004. "Cream Skimming, Dregs Skimming, and Pooling: On the Dynamics of Competitive Screening," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 29(1), pages 23-41, June.
    • Handle: RePEc:pal:genrir:v:29:y:2004:i:1:p:23-41
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    Cited by:

    1. Jobst, Andreas A., 2002. "The Pricing puzzle: The default term structure of collateralised loan obligations," CFS Working Paper Series 2002/14, Center for Financial Studies (CFS).
    2. Andreas Jobst, 2002. "Loan Securitisation: Default Term Structure and Asset Pricing Based on Loss Prioritisation," FMG Discussion Papers dp422, Financial Markets Group.
    3. Georges Dionne & Nathalie Fombaron & Wanda Mimra, 2025. "Adverse Selection in Insurance," Springer Books, in: Georges Dionne (ed.), Handbook of Insurance, edition 0, pages 165-221, Springer.

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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