Rational but Not Prescient: Borrowing during the Fracking Boom

Daniel Berkowitz, Andrew J. dup Boslett, Jason Brown and Jeremy Weber

No RWP 2022-05, Research Working Paper from Federal Reserve Bank of Kansas City

Abstract: 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 model indicates that leaseholders’ income expectations aligned with forecasts of persistently high natural gas prices. Yet, the unforeseeable success of fracking was associated with reduced prices and increased bankruptcies during 2009–19 for non-prime leaseholders as well as fracking firms.

Keywords: Income shocks; Consumer debt; Bankruptcy; Resource booms (search for similar items in EconPapers)
JEL-codes: D12 G51 Q33 (search for similar items in EconPapers)
Pages: 49
Date: 2022-05-23
New Economics Papers: this item is included in nep-ban and nep-ene
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DOI: 10.18651/RWP2022-05

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