Skip to main content

Institutions and the shale boom


This paper uses the institutional economics of Douglass North to explain three features of the shale boom: why fracking technology emerged in the United States, the rapid increase in production of natural gas in the United States and the uneven response to these new economic opportunities in shale-rich economies. It argues that the institutional matrix of the United States, in particular private ownership of minerals, encouraged experimentation on the barren Texas oil and gas fields, where fracking technology emerged and the rapid transfer of mineral rights to gas companies. Institutional entrepreneurs, namely landmen and lawyers, facilitated contracting between owners of mineral rights and drillers. Private ownership of minerals and an ideology supportive of drilling provide insight into the adoption of regulations that encourage hydraulic fracturing.

Corresponding author
Hide All
Acemoglu, D. (2003), ‘Why not a Political Coase Theorem? Social Conflict, Commitment, and Politics’, Journal of Comparative Economics, 31 (4): 620652.
Acemoglu, D., Johnson, S., and Robinson, J. A. (2002), ‘Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution’, The Quarterly Journal of Economics, 117 (4): 12311294.
Acemoglu, D., Johnson, S., and Robinson, J. A. (2003), ‘An African Success Story: Botswana’, in Rodrik, D. (ed.), Analytic Narratives on Economic Growth, Princeton, NJ: Princeton University Press, pp. 80119.
Acemoglu, D., Johnson, S., and Robinson, J. A. (2005), ‘Institutions as a Fundamental cause of Long-Run Growth’, in Aghion, P. and Durlauf, S. N. (eds.), Handbook of Economic Growth, vol. IA, Amsterdam, The Netherlands: Elsevier North-Holland, pp. 385–372.
Acemoglu, D. and Robinson, J. A. (2001), ‘The Colonial Origins of Comparative Development: An Empirical Investigation’, The American Economic Review, 91 (5): 13691401.
Anderson, T. L. and Hill, P. J. (1990), ‘The Race for Property Rights’, Journal of Law and Economics, 33 (1) 177197.
Arnold, G. and Holahan, R. (2014), ‘The Federalism of Fracking: How the Locus of Policy-Making Authority Affects Civic Engagement’, Publius, 44 (2): 344368.
Bednar, J. (2008), The Robust Federation, New York: Cambridge University Press.
Blattman, C., Hartman, A., and Blair, R. (2014), ‘How to Promote Order and Property Rights Under Weak Rule of Law? An Experiment in Changing Dispute Resolution Behavior Through Community Education’, American Political Science Review, 108 (1): 100120.
Boudet, H., Clarke, C., Bugden, D., Maibach, E., Roser-Renouf, C., and Leiserowitz, A. (2014), ‘“Fracking” Controversy and Communication: Using National Survey Data to Understand Public Perceptions of Hydraulic Fracturing’, Energy Policy, 65, 5767.
Bradley, R. L. (1996), Oil, Gas & Government: The US Experience, New York: Rowman & Littlefield Publishers.
Bromley, D. W. (1991), Environment and Economy: Property Rights and Public Policy, Oxford, UK: Blackwell Publishers.
Bromley, D. W. (2006), Sufficient Reason: Volitional Pragmatism and the Meaning of Economic Institutions, Princeton, NJ: Princeton University Press.
Bromley, D. W. (2009), ‘Abdicating Responsibility: The Deceits of Fisheries Policy’, Fisheries, 34 (6): 280290.
Coase, R. (1960), ‘The Problem of Social Cost’, Journal of Law and Economics, 3 (1): 144.
Coase, R. H. (1937), ‘The Nature of the Firm’, Economica, 4 (16): 386405.
Cole, D. H., Epstein, G., and Mcginnis, M. D. (2014), ‘Digging Deeper into Hardin's Pasture: The Complex Institutional Structure of “The Tragedy of the Commons”’, Journal of Institutional Economics, 10 (3): 353369.
Collins, A. R. and Nkansah, K. (2015), ‘Divided Rights, Expanded Conflict: Split Estate Impacts on Surface Owner Perceptions of Shale Gas Drilling’, Land Economics, 91 (4): 688703.
Commons, J. R. (1924), Legal Foundations of Capitalism, New York: Macmillan.
Cusick, M. (2014), ‘Survey: Pennsylvanians like Fracking more than New Yorkers’, StateImpact, 8 September.
DeLeire, T., Eliason, P., and Timmins, C. (2014), ‘Measuring the Employment Impacts of Shale Gas Development’, McCourt School of Public Policy, Georgetown University Working Paper.
Demsetz, H. (1967), ‘Toward a Theory of Property Rights’, American Economic Review, 57 (2): 347359.
Denzau, A. T. and North, D. C. (1994), ‘Shared Mental Models: Ideologies and Institutions’, Kyklos, 47 (1): 331.
Diermeier, D., Ericson, J. M., Frye, T., and Lewis, S. (1997), ‘Credible Commitment and Property Rights: The Role of Strategic Interaction Between Political and Economic Actors’, in Weimer, D.L. (ed.), The Political Economy of Property Rights: Institutional Change and Credibility in the Reform of Centrally Planned Economies, New York: Cambridge University Press, 2042.
Eggertsson, T. (1990), Economic Behavior and Institutions: Principles of Neoinstitutional Economics, New York: Cambridge University Press.
Ellickson, R. C. (1993), ‘Property in Land’, Yale Law Journal, 102, 13151400.
Etter, L. (2015), ‘Texas Landmen Left Out of Work as Oil Patch Boom Turns Bust’, Bloomberg, 23 March.
Fetzer, T. (2014), ‘Fracking Growth’, CEP Discussion Papers 1278.
Fitzgerald, T. (2010), ‘Evaluating Split Estates in Oil and Gas Leasing’, Land Economics, 86 (2): 294312.
Fitzgerald, T. (2012), ‘Natural Resource Production Under Divided Ownership: Evidence from Coalbed Methane’, Review of Law & Economics, 8 (3): 719757.
Fitzgerald, T. (2013), ‘Frackonomics: Some Economics of Hydraulic Fracturing’, Case Western Law Review, 63 (4): 13371362.
Foner, E. (1971), Free Soil, Free Labor, Free Men: The Ideology of the Republican Party before the Civil War, New York: Oxford University Press.
Fry, M., Briggle, A., and Kincaid, J. (2015), ‘Fracking and Environmental (in) Justice in a Texas City’, Ecological Economics, 117, 97107.
Gabriel, T. and Davenport, C. (2016), ‘“Fractivists” Increase Pressure on Hillary Clinton and Bernie Sanders in New York’, New York Times, 4 April.
Gates, P. W. (1977), ‘Homesteading in the High Plains’, Agricultural History, 51 (1): 109133.
Gehlbach, S. and Keefer, P. (2011) ‘Investment without Democracy: Ruling-Party Institutionalization and Credible Commitment in Autocracies’, Journal of Comparative Economics, 39 (2): 123139.
Gelman, A. (2009), Red State, Blue State, Rich State, Poor State: Why Americans Vote the Way they do, Princeton, NJ: Princeton University Press.
Golden, J. M. and Wiseman, H. J. (2015), ‘The Fracking Revolution: Shale Gas as a Case Study in Innovation Policy’, Emory Law Journal, 64 (4): 9551040.
Graham, J. D., Rupp, J. A., and Schenk, O. (2015), ‘Unconventional Gas Development in the USA: Exploring the Risk Perception Issues’, Risk Analysis, 35 (10): 17701788.
Greif, A. and Laitin, D. D. (2004), ‘A Theory of Endogenous Institutional Change’, American Political Science Review, 98 (4): 633652.
Hausman, C. and Kellogg, R. (2015), ‘Welfare and Distributional Implications of Shale Gas’, Brookings Papers on Economic Activity, 50 (1): 71125.
Hodgson, G. M. (1998), ‘The Approach of Institutional Economics’, Journal of Economic Literature, 36 (1): 166192.
Holahan, R. and Arnold, G. (2013), ‘An Institutional Theory of Hydraulic Fracturing Policy’, Ecological Economics, 94, 127134.
Humphries, M. (2013), ‘US Crude Oil and Natural Gas Production in Federal and Non-Federal Areas’, Washington: Congressional Research Service. CRS Report R42432. Washington, DC: Congressional Research Service.
Kahneman, D. and Tversky, A. (1979), ‘Prospect Theory: An Analysis of Decision under Risk’, Econometrica, 47 (2): 263291.
Kelly-Detwiler, P. (2013), ‘Shale Leases: Promised Land’, Forbes, 3 January.
Kirzner, I. M. (1978), Competition and Entrepreneurship, Chicago, IL: University of Chicago Press.
Knight, J. (1992), Institutions and Social Conflict, New York: Cambridge University Press.
Knight, J. and North, D. C. (1997) ‘Explaining the complexity of institutional change’, in Weimer, D. L. (ed.), The Political Economy of Property Rights: Institutional Change and Credibility in the Reform of Centrally Planned Economies, New York: Cambridge University Press, pp. 349354.
Knight, J. and Sened, I. (eds.) (1995), Explaining Social Institutions, Ann Arbor, MI: University of Michigan Press.
Komesar, N. K. (1994), Imperfect Alternatives: Choosing Institutions in Law, Economics, and Public Policy, Chicago, IL: University of Chicago Press.
Kopsidis, M. and Bromley, D. W. (2015), ‘The French Revolution and German Industrialization: Dubious Models and Doubtful Causality’, Journal of Institutional Economics, 12 (1): 130.
Kriesky, J., Goldstein, B. D., Zell, K., and Beach, S. (2013), ‘Differing Opinions About Natural Gas Drilling in Two Adjacent Counties with Different Levels of Drilling Activity’, Energy Policy, 58, 228236.
Leeson, P. T. and Boettke, P. J. (2009), ‘Two-Tiered Entrepreneurship and Economic Development’, International Review of Law and Economics, 29 (3): 252259.
Legere, L. (2016), ‘Analysis says Wolf's Proposed Severance Tax Rate is Among Nation's Highest’, Pittsburgh Post-Gazette, 3 May.
Libecap, G. D. (1989), Contracting for Property Rights, New York: Cambridge University Press.
Libecap, G. D. (2005), ‘Chinatown: Owens Valley and Western Water Reallocation-Getting the Record Straight and What it Means for Water Markets’, Texas Law Review, 83 (7): 20552089.
Libecap, G. D. (2007), ‘The Assignment of Property Rights on the Western Frontier: Lessons for Contemporary Environmental and Resource Policy’, Journal of Economic History, 67 (2), 257.
Libecap, G. D. (2009) ‘Chinatown Revisited: Owens Valley and Los Angeles—Bargaining Costs and Fairness Perceptions of the First Major Water Rights Exchange’, Journal of Law, Economics, and Organization, 25 (2): 311338.
Libecap, G. D. and Lueck, D. (2011), ‘The Demarcation of Land and the Role of Coordinating Property Institutions’, Journal of Political Economy, 119 (3): 426467.
Libecap, G. D. and Wiggins, S. N. (1985), ‘The Influence of Private Contractual Failure on Regulation: The Case of Oil Field Unitization’, The Journal of Political Economy, 93 (4): 690714.
Mahoney, J. and Thelen, K. (2009), Explaining Institutional Change: Ambiguity, Agency, and Power, New York: Cambridge University Press.
Mason, J. R. (2013), ‘Beyond the Congressional Budget Office: The Additional Economic Effects of Immediately Opening Federal Lands to Oil and Gas Leasing’, Institute for Energy Research, Washington, DC: Institute for Energy Research.
McCloskey, D. N. (2010), Bourgeois Dignity: Why Economics Can't Explain the Modern World, Chicago: University of Chicago Press.
McGinnis, M. D. and Ostrom, E. (2012), ‘Reflections on Vincent Ostrom, Public Administration, and Polycentricity’, Public Administration Review, 72 (1): 1525.
McGuire, M. C. and Olson, M. (1996), ‘The Economics of Autocracy and Majority Rule: The Invisible Hand and the Use of Force’, Journal of Economic Literature, 34 (1): 7296.
McKinley, J. (2013), ‘Still Undecided on Fracking, Cuomo Won't Press for Health Study's Release’, New York Times, 16 December.
Mittal, S., Rakove, J. N., and Weingast, B. R. (2011), ‘The Constitutional Choices of 1787 and their Consequences’, in Irwin, D. A. (ed.), Founding Choices: American Economic Policy in the 1790s, Chicago, IL: University of Chicago Press, pp. 2556.
Moser, P. (2013), ‘Patents and Innovation: Evidence from Economic History’, The Journal of Economic Perspectives, 27 (1): 2344.
Muehlenbachs, L., Spiller, E., and Timmins, C. (2015), ‘The Housing Market Impacts of Shale Gas Development’, American Economic Review, 105 (12): 36333659.
Murtazashvili, I. (2013), The Political Economy of the American Frontier, New York: Cambridge University Press.
Murtazashvili, I. and Murtazashvili, J. (2016), ‘When Does the Emergence of a Stationary Bandit Lead to Property Insecurity?’, Rationality and Society, 28 (3): 335–60.
Myerson, R. (2014), ‘Constitutional Structures for a Strong Democracy: Considerations on the Government of Pakistan’, World Development, 53, 4654.
Navarro, M. (2011), ‘Signing Drilling Leases, and Now Having Regrets’, New York Times, 22 September.
North, D. C. (1956), ‘International Capital Flows and the Development of the American West’, The Journal of Economic History, 16 (4): 493505.
North, D. C. (1966), Growth and Welfare in the American Past: A New Economic History, Englewood Cliffs, N.J.: Prentice-Hall.
North, D. C. (1981), Structure and Change in Economic History, New York: W. W. Norton & Company.
North, D. C. (1990), Institutions, Institutional Change and Economic Performance, New York: Cambridge University Press.
North, D. C. (2005), Understanding the Process of Economic Change, Princeton, NJ: Princeton University Press.
North, D. C. and Rutten, A. (1987), ‘The Northwest Ordinance in Historical Perspective’, in Klingaman, D. C. and Vedder, R. K. (eds.), Essays on the Economy of the Old Northwest, Athens, Ohio: Ohio University Press, 1931.
North, D. C. and Thomas, R. P. (1973), The Rise of the Western World: A New Economic History, New York: Cambridge University Press.
North, D. C., Wallis, J. J., and Weingast, B. R. (2009), Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History, New York: Cambridge University Press.
North, D. C. and Weingast, B. R. (1989), ‘Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England’, The Journal of Economic History, 49 (4): 803832.
Olken, B. A. (2007), ‘Monitoring Corruption: Evidence from a Field Experiment in Indonesia’, Journal of Political Economy, 115 (2): 200249.
Olken, B. A. (2010), ‘Direct Democracy and Local Public Goods: Evidence from a Field Experiment in Indonesia’, American Political Science Review, 104 (2): 243267.
Olmstead, S. M., Muehlenbachs, L. A., Shih, J.-S., Chu, Z., and Krupnick, A. J. (2013), ‘Shale Gas Development Impacts on Surface Water Quality in Pennsylvania’, Proceedings of the National Academy of Sciences, 110 (13): 49624967.
Olson, M. (1965), The Logic of Collective Action: Public Goods and the Theory of Groups, Cambridge, MA: Harvard University Press.
Olson, M. (1993), ‘Dictatorship, Democracy, and Development’, American Political Science Review, 87 (3): 567576.
Ostrom, E. (1990), Governing the Commons: The Evolution of Institutions for Collective Action, New York: Cambridge University Press.
Ostrom, E. (2007), ‘A Diagnostic Approach for Going Beyond Panaceas’, Proceedings of the National Academy of Sciences, 104 (39): 1518115187.
Ostrom, E. (2009), ‘A General Framework for Analyzing Sustainability of Social-Ecological Systems’, Science, 325 (5939): 419422.
Ostrom, V., Tiebout, C. M., and Warren, R. (1961), ‘The Organization of Government in Metropolitan Areas: A Theoretical Inquiry’, American Political Science Review, 55 (4): 831842.
Phillips, S. (2016), ‘Wolf Proposes 6.5 Percent Tax on Marcellus Shale’, StateImpact, 9 February.
Pierson, P. (2000), ‘Increasing Returns, Path Dependence, and the Study of Politics’, American Political Science Review, 94 (2): 251267.
Rabe, B. G. and Borick, C. (2013), ‘Conventional Politics for Unconventional Drilling? Lessons from Pennsylvania's Early Move into Fracking Policy Development’, Review of Policy Research, 30 (3): 321340.
Richardson, N., Gottlieb, M., Krupnick, A., and Wiseman, H. J. (2013), ‘The State of State Shale Gas Regulation’, Resources for the Future Report.
Riker, W. H. and Weimer, D. L. (1993), ‘The Economic and Political Liberalization of Socialism: The Fundamental Problem of Property Rights’, Social Philosophy and Policy, 10 (2): 79102.
Riker, W. H. and Weimer, D. L. (1995), ‘The Political Economy of Transformation: Liberalization and Property Rights’, in Banks, J. and Hanushek, E. (ed.), Modern Political Economy: Old Topics, New Directions, New York: Cambridge University Press, pp. 80107.
Root, H. L. (1989), ‘Tying the King's Hands Credible Commitments and Royal Fiscal Policy during the Old Regime’, Rationality and Society, 1 (2): 240258.
Sened, I. (1997), The Political Institution of Private Property, New York: Cambridge University Press.
Siegel, F. (2013), ‘Fracking, Poverty and the New Liberal Gentry’, Wall Street Journal, 7 November.
Small, M. J., Stern, P. C., Bomberg, E., Christopherson, S. M., Goldstein, B. D., Israel, A. L., Jackson, R. B., Krupnick, A., Mauter, M. S., and Nash, J. (2014), ‘Risks and Risk Governance in Unconventional Shale Gas Development’, Environmental Science & Technology, 48 (15): 82898297.
Sovacool, B. K. (2014), ‘Cornucopia or curse? Reviewing the costs and benefits of shale gas hydraulic fracturing (fracking)’, Renewable and Sustainable Energy Reviews, 37, 249264.
Spence, D. B. (2013), ‘Responsible Shale Gas Production: Moral Outrage vs. Cool Analysis’, Fordham Environmental Law Review, 25, 141191.
The Economist (2014a), ‘Dead-Cow Bounce: Politics is the Biggest Hurdle to Developing the Enormous Vaca Muerta field’, 23 August.
The Economist (2014b) ‘Shale Game: China Drastically Reduces its Ambitions to be a Big Shale-Gas Producer’, 30 August.
The Wall Street Journal (2012), ‘The Shale Gas Secret: Why has Drilling Boomed in America, While it Struggles in Europe?’, 16 July.
Timmins, C. and Vissing, A. (2014), Shale gas leases: Is bargaining efficient and what are the implications for homeowners if it is not. Working paper, Department of Economics, Duke University. Available at
Tullock, G. (1967), ‘The Welfare Costs of Tariffs, Monopolies, and Theft’, Economic Inquiry, 5 (3): 224232.
Umbeck, J. (1977), ‘A Theory of Contract Choice and the California Gold Rush’, Journal of Law and Economics, 20 (2): p. 421.
U.S. EIA (2015), Annual Energy Outlook 2015.
Vissing, A. (2015), ‘Private Contracts as Regulation: A Study of Private Lease Negotiations Using the Texas Natural Gas Industry’, Agricultural and Resource Economics Review, 44 (2): 120137.
Walker, A. W. (1928), ‘Nature of the Property Interests Created by an Oil and Gas Lease in Texas’, Texas Law Review, 7 (1): pp. 149.
Wallis, J. J. and North, D. (1986), ‘Measuring the Transaction Sector in the American Economy, 1870–1970’, in Long-Term Factors in American Economic Growth. University of Chicago Press, 95162.
Weber, J. G. (2012), ‘The Effects of a Natural Gas Boom on Employment and Income in Colorado, Texas, and Wyoming’, Energy Economics, 34 (5): 15801588.
Weber, J. G., Burnett, J., and Xiarchos, I. M. (2016), ‘Broadening Benefits from Natural Resource Extraction: Housing Values and Taxation of Natural Gas Wells as Property’, Journal of Policy Analysis and Management, 35 (3): 587614.
Weimer, D. L. (ed.) (1997), The Political Economy of Property Rights: Institutional Change and Credibility in the Reform of Centrally Planned Economies. New York: Cambridge University Press.
Weingast, B. R. (1995), ‘The Economic Role of Political Institutions: Market-Preserving Federalism and Economic Development’, Journal of Law, Economics, and Organization, 11 (1): 131.
Weingast, B. R. (1997), ‘The Political Foundations of Democracy and the Rule of Law’, American Political Science Review, 91 (2): 245263.
Wiggins, S. N. and Libecap, G. D. (1985), ‘Oil Field Unitization: Contractual Failure in the Presence of Imperfect Information’, The American Economic Review, 75 (3): 368385.
Wilber, T. (2012), Under the Surface: Fracking, Fortunes, and the Fate of the Marcellus Shale. Cornell University Press.
Williamson, O. E. (2005), ‘The Economics of Governance’, American Economic Review, 95 (2): 118.
Wiseman, H. J. (2009), ‘Untested Waters: The Rise of Hydraulic Fracturing in Oil and Gas Production and the Need to Revisit Regulation’, Fordham Environmental Law Review, 20, pp. 115–71.
Yeatts, G. M. (1997), ‘Subsurface Wealth: The Struggle for Privatization in Argentina’, Journal of Energy Literature, 3, 115125.
Yoo, D. and Steckel, R. H. (2016), ‘Property Rights and Economic Development: The Legacy of Japanese Colonial Institutions’, Journal of Institutional Economics, 12 (3): 623650.
Zuckerman, G. (2013a), ‘Breakthrough: The Accidental Discovery That Revolutionized American Energy’, The Atlantic, 6 November.
Zuckerman, G. (2013b), The frackers: The Outrageous Inside Story of the New Billionaire Wildcatters. New York: Penguin.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Journal of Institutional Economics
  • ISSN: 1744-1374
  • EISSN: 1744-1382
  • URL: /core/journals/journal-of-institutional-economics
Please enter your name
Please enter a valid email address
Who would you like to send this to? *


Altmetric attention score

Full text views

Total number of HTML views: 13
Total number of PDF views: 113 *
Loading metrics...

Abstract views

Total abstract views: 567 *
Loading metrics...

* Views captured on Cambridge Core between 19th September 2016 - 25th April 2018. This data will be updated every 24 hours.