The Local Economic and Welfare Consequences of Hydraulic Fracturing

Abstract

Exploiting geological variation and timing in the initiation of hydraulic fracturing, we find that fracing leads to sharp increases in oil and gas recovery and improvements in a wide set of economic indicators. There is also evidence of deterioration in local amenities, which may include increases in crime, noise, traffic and declines in health. Using a Rosen-Roback-style spatial equilibrium model to infer the net welfare impacts, we estimate that willingness-to-pay (WTP) for allowing fracing equals about $2,400 per household annually (5.2% of household income), although WTP is heterogeneous, ranging from more than $10,000 to roughly zero across ten shale regions.