Demand for new cities: Property value capitalization of municipal incorporation

This paper investigates property value capitalization of municipal incorporation. Using detailed data from the metropolitan Atlanta area, our empirical strategy combines difference-in-differences hedonics with a relatively underutilized matching method from the class of monotonic imbalance bounding methods that approximates a fully blocked randomized experiment. We find that new city formation is positively capitalized into property values within the new city, increasing 4-5% in the two years following new city formation compared to the two years prior and 12-13% over the entire analysis period. The results also indicate that capitalization is stronger for parcels with greater potential for redistribution.