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
