Memorandum, Department of Economics, University of Oslo 2000,39
We discuss the prevalence of pooling equilibria in a two-period model of an insurance market with asymmetric information. We solve the model numerically. In addition to reporting cases where a pooling equilibrium exists, we pay attention to why, in the case of non-existence of a pooling equilibrium, this is so. 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.