The case of the missing negative externality? Housing market effects of fracking in the Niobrara shale play, Colorado

Recent rapid growth of shale gas exploration in the state of Colorado (CO) and elsewhere in the United States has caused considerable public concern over potential environmental costs to local communities, proximal to the location of energy development. In Weld County, CO, shale gas exploration has grown substantially since 2013. Both population and new construction of houses also increased significantly after 2012. Combined, this increased the potential for negative externalities. The objective of the analysis is to apply the hedonic pricing method, using single-family residential data from October 2014 to March 2017 and a temporal-spatial identification strategy, to estimate the environmental cost of shale gas exploration on nearby house prices in Weld County, CO. However, results from spatial econometric models provide no evidence of significant environmental impacts on housing values. Our policy discussion explores a possible Coasian bargaining solution as the source for this case of a missing negative externality. The energy and housing markets appear to be internalising externalities, where side payments from energy developers to homeowners are enough to compensate for any environmental impacts to housing.