Innovations in drilling and hydraulic fracturing (“fracking”) have enabled tremendous amounts of natural gas to be extracted from underground shale formations that were long thought to be uneconomical. But has this shale gas boom translated in an economic boom? According to Catherine Hausman and Ryan Kellogg, who shared the first-ever estimates of broad-scale welfare and distributional implications of fracking as part of the most recent conference of the Brookings Papers on Economic Activity (BPEA), the answer is yes. Here’s why.
Great example of sunk costs. Remember these are cost that can't be recovered if the firm leaves the market. Here the specialist machinery and equipment is no use outside steel production and given the state of the market no buyers seem likely for the surplus equipment.
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