IDEAS home Printed from https://ideas.repec.org/a/pal/genrir/v29y2004i1p23-41.html
   My bibliography  Save this article

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: http://www.palgrave-journals.com/grir/journal/v29/n1/pdf/grir2004162a.pdf
    File Function: Link to full text PDF
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: http://www.palgrave-journals.com/grir/journal/v29/n1/full/grir2004162a.html
    File Function: Link to full text HTML
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    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 209-235, April.
    2. Joseph E. Stiglitz, 1977. "Monopoly, Non-linear Pricing and Imperfect Information: The Insurance Market," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 407-430.
    3. Parigi, Bruno M., 1994. "Self selection in a dynamic credit model," European Journal of Political Economy, Elsevier, vol. 10(3), pages 571-590, October.
    4. Tirole, Jean, 1986. "Procurement and Renegotiation," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 235-259, April.
    5. Szpiro, George G, 1986. "Measuring Risk Aversion: An Alternative Approach," The Review of Economics and Statistics, MIT Press, vol. 68(1), pages 156-159, February.
    6. 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.
    7. Nilssen, Tore, 2000. "Consumer lock-in with asymmetric information," International Journal of Industrial Organization, Elsevier, vol. 18(4), pages 641-666, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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. Jobst, Andreas A., 2002. "Loan securitisation: default term structure and asset pricing based on loss prioritisation," LSE Research Online Documents on Economics 24941, London School of Economics and Political Science, LSE Library.

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:genrir:v:29:y:2004:i:1:p:23-41. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla) or (Springer Nature Abstracting and Indexing). General contact details of provider: http://www.palgrave-journals.com/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.