What question did this study set out to answer?

To evaluate how federal subsidy expansions affect public livestock insurance prices relative to derivative market-based protection across time.

August 19, 2026Journal of Risk & Insurance

Subsidy expansions, pricing wedges, and derivative markets: Evidence from livestock risk protection

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Authors

EPEunchun Park XFXiaoyi Fang LCLawson Connor

Discussion

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Overview

Empirical analysis reveals federal subsidy expansions shifted livestock insurance pricing wedges from negative to positive, highlighting the direct impact of statutory subsidies on market parity.

Key Points

To evaluate how federal subsidy expansions affect public livestock insurance prices relative to derivative market-based protection across time.
Matched Livestock Risk Protection (LRP) endorsements to Chicago Mercantile Exchange (CME) put options covering the 2005–2024 period.
Calculated net pricing wedges (matched put premium minus producer-paid LRP premium and implementation costs) across pre- and post-2019/2020 subsidy schedules.
Conducted counterfactual simulations of pre-expansion subsidy rates and developed out-of-sample prediction models using lagged market data.
Average net pricing wedges were near zero overall but transitioned from negative values before 2019–2020 to positive values after the implementation of the 2020 tiered subsidy schedule.
Gross LRP premiums generally remained higher than matched put premiums, and pre-expansion counterfactual rates reversed post-expansion wedges, demonstrating that statutory subsidies drive the pricing shift.
Out-of-sample predictions relying exclusively on lagged market information successfully identified matched contracts that generated more favorable realized wedges.

Cite This Study

Park et al. (2026) studied this question.

synapsesocial.com/papers/6a8563d703308d306e2d738a https://doi.org/10.1111/jori.70068

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August 19, 2026Journal of Risk & Insurance

Subsidy expansions, pricing wedges, and derivative markets: Evidence from livestock risk protection

View Full Paper

Ask AI

Bookmark

Authors

EPEunchun Park XFXiaoyi Fang LCLawson Connor

Discussion

Member takes

Overview

Empirical analysis reveals federal subsidy expansions shifted livestock insurance pricing wedges from negative to positive, highlighting the direct impact of statutory subsidies on market parity.

Key Points

To evaluate how federal subsidy expansions affect public livestock insurance prices relative to derivative market-based protection across time.
Matched Livestock Risk Protection (LRP) endorsements to Chicago Mercantile Exchange (CME) put options covering the 2005–2024 period.
Calculated net pricing wedges (matched put premium minus producer-paid LRP premium and implementation costs) across pre- and post-2019/2020 subsidy schedules.
Conducted counterfactual simulations of pre-expansion subsidy rates and developed out-of-sample prediction models using lagged market data.
Average net pricing wedges were near zero overall but transitioned from negative values before 2019–2020 to positive values after the implementation of the 2020 tiered subsidy schedule.
Gross LRP premiums generally remained higher than matched put premiums, and pre-expansion counterfactual rates reversed post-expansion wedges, demonstrating that statutory subsidies drive the pricing shift.
Out-of-sample predictions relying exclusively on lagged market information successfully identified matched contracts that generated more favorable realized wedges.

Cite This Study

Park et al. (2026) studied this question.

synapsesocial.com/papers/6a8563d703308d306e2d738a https://doi.org/10.1111/jori.70068

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