Valuing shale gas development in resource-dependent communities

Technological advances in oil and gas drilling have enabled the productive extraction of natural gas in new regions. The benefits from employment and income opportunities can help stimulate economies and may be valued by local residents. At the same time, however, shale gas activity can alter natural landscapes and is associated with negative externalities, including potential groundwater contamination. While some previous research has examined the impact of shale development, our paper focuses on the local impacts in West Virginia, a state with a long history of resource-extraction and one whose economy has lagged the nation. Because of its history of resource extraction, communities in West Virginia who may have limited other economic prospects may value the activity differently. Additionally, most of the previous research used data during the initial boom, ignoring the slowdown that followed. Using the coarsened exact matching (CEM) technique, we match houses near producing wells with other similar houses, in order to examine how property values in West Virginia are affected by proximity to horizontal producing wells. This technique helps compensate for the relatively small number of housing transactions in West Virginia, ensuring we have a good counterfactual. After matching, we estimate the average capitalization effect of houses near producing shale wells. We find that the price of all houses (regardless of water source) decreases as the number of surrounding wells increases. However, we also find some evidence that this effect varies over time and that the negative capitalization effect attenuates over space.