Internalizing Externalities through Public Pressure: Transparency Regulation for Fracking, Drilling Activity and Water Quality 

Center for Financial Studies Working paper No. 722, 2024

105 Pages Posted: 25 Oct 2024

See all articles by Pietro Bonetti

Pietro Bonetti

University of Navarra, IESE Business School

Christian Leuz

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Leibniz Institute SAFE; CESifo Research Network; Center for Financial Studies (CFS)

Giovanna Michelon

University of Padua; University of Bristol

Date Written: April 17, 2024

Abstract

The rise of shale gas and tight oil development has triggered a major debate about hydraulic fracturing (HF). In an effort to bring light to HF practices and their potential risks to water quality, many U.S. states have mandated disclosure for HF wells and the fluids used. We employ this setting to study whether targeting corporate activities that have dispersed externalities with transparency reduces their environmental impact. Examining salt concentrations that are considered signatures for HF impact, we find significant and lasting improvements in surface water quality between 9-14% after the mandates. Most of the improvement comes from the intensive margin. We document that operators pollute less per unit of production, cause fewer spills of HF fluids and wastewater and use fewer hazardous chemicals. Turning to how transparency regulation works, we show that it increases public pressure and enables social movements, which facilitates internalization.

JEL Classification: D62, G38, K22, K32, L71, M41, M48, Q53

Suggested Citation

Bonetti, Pietro and Leuz, Christian and Michelon, Giovanna,
Internalizing Externalities through Public Pressure: Transparency Regulation for Fracking, Drilling Activity and Water Quality 
(April 17, 2024). Center for Financial Studies Working paper No. 722, 2024, Available at SSRN: https://ssrn.com/abstract=4959265 or http://dx.doi.org/10.2139/ssrn.4959265

Pietro Bonetti (Contact Author)

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

Christian Leuz

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-1996 (Phone)

HOME PAGE: http://faculty.chicagobooth.edu/christian.leuz/

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI)

Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Leibniz Institute SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

CESifo Research Network

Poschinger Str. 5
Munich, DE-81679
Germany

Center for Financial Studies (CFS) ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Giovanna Michelon

University of Padua ( email )

Via del Santo 33
Padova, PD 35123
Italy

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, Avon BS8 ITH
United Kingdom
BS8 1PQ (Fax)

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