Internalizing Externalities through Public Pressure: Transparency Regulation for Fracking and Water Quality

Responding to the rise of hydraulic fracturing (HF) and risks to water quality, U.S. states mandated disclosure for HF wells. We study whether and how such targeting of corporate externalities with transparency regulation reduces environmental impact. We examine salt concentrations considered HF signatures and find significant reductions in surface water impact between 9-14%, mostly along the intensive margin. Consistent with that we document improvements in operator practices, including fewer wastewater spills. We unpack the transparency mechanism and show that transparency regulation enables social movements and increases public pressure, which in turn drives the documented changes in practices and water quality.