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 the importance of the opposite: dregs skimming, whereby high-risk consumers are profitably detracted from the candidate pooling contract.
|Place of Publication||Frederiksberg|
|Publisher||Department of Economics. Copenhagen Business School|
|Number of pages||22|
|Publication status||Published - 2003|
|Series||Working Paper / Department of Economics. Copenhagen Business School|
Lund, D., & Nilssen, T. (2003). Cream Skimming, Dregs Skimming, and Pooling: On the Dynamics of Competitive Screening. Department of Economics. Copenhagen Business School. Working Paper / Department of Economics. Copenhagen Business School, No. 1-2003