Discussion Paper

Shale Gas Development and the Costs of Groundwater Contamination Risk

Mar 19, 2013 | Lucija Anna Muehlenbachs, Elisheba Beia Spiller, Chris Timmins

Summary

In this study of Washington County, Pennsylvania, experts find that proximity to wells increases property values, but groundwater contamination concerns fully offset those gains by reducing property values.

Abstract

While shale gas development can result in rapid local economic development, negative externalities associated with the process may adversely affect the prices of nearby homes. We utilize a difference-in-differences estimator with additional controls for house fixed effects and the boundary of the public water service area in Washington County, Pennsylvania to identify the capitalization of groundwater contamination risk in property values, differentiating it from other externalities, lease payments to homeowners, and local economic development. We find that proximity to wells increases property values. However, groundwater contamination concerns fully offset those gains by reducing property values up to 26 percent.