Environmental Justice and Coasian Bargaining: The Role of Race and Income in Lease Negotiations for Shale Gas

Abstract

Using a unique combination of datasets and estimation techniques, we test whether private lease negotiations to extract oil and natural gas exhibit features of Coasian efficiency. We demonstrate that measures of wealth (including income, house square footage, and land acreage), typically determinants of willingness to pay for environmental quality, do affect bargaining outcomes. However, race, ethnicity, and language also play important roles after conditioning upon these variables, suggesting an environmental injustice and a breakdown of efficient Coasian bargaining. We further demonstrate that failure to negotiate protections in leases leads to increased risk of future drilling violations, which are not offset by local ordinance restrictions. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.