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Working Paper
Borrowing Based on Great Expectations: Evidence from the Origins of Fracking
We use the origins of fracking to study how people respond to a large and uncertain permanent income shock. Following the arrival of news in 2003 that fracking was commercially viable, the average person owning rights to natural gas deposits in the Barnett Shale could plausibly expect to earn a present value of about $33,000 from leasing the rights to energy firms. Anticipating the income, people who signed leases after 2006 borrowed $5,400 more than non-leaseholders as of 2006. Leases not yet signed could not be collateralized, suggesting that expectations of increased permanent income ...
Working Paper
Rational but Not Prescient: Borrowing during the Fracking Boom
To study how income expectations affect borrowing, we use leased natural gas rights in Texas in the mid-2000s, which created potential for future leaseholder income without loosening credit constraints. In matching 11,000 leaseholders with non-leaseholders selected from a screened pool of 5.2 million, we find that the average leaseholder borrowed $13,000 more over the 2003–08 leasing boom. A consumption-smoothing modelindicates that leaseholders’ income expectations aligned with forecasts of persistently high natural gas prices. Yet, the unforeseeable success of fracking was associated ...