A method to determine capitalization in small data samples

• Main Author: Kopsch, Fredrik
• Format: Report
• Language: unknown
• Subjects: Gällivare
• Online Access: https://www.dropbox.com/s/94qh7yb3zy0s750/WP201320.pdf

Most policies regarding infrastructure or the built environment have an effect on real estate prices. While certain decisions have a positive effect, others have a negative one. Determining these effects is an important aspect of evaluating policy and can be done in several ways. The most prevalent methods in the literature are (1) before and after analysis and (2) index creation. However, both these methods imply certain conditions of available data. (1) demands knowledge of a specific point in time when the policy was implemented and (2) demands sufficiently large quantities of data to be able to make accurate indices. This paper proposes an alternative method that can be applied when both these conditions are violated. The method, a continuous before-and-after analysis, is based on a dummy variable that is systematically redefined over time and re-estimated to tease out the effect that a particular event has had on property prices. The method is applied on transaction based data for Gällivare municipality, where an announcement regarding evacuation of a large residential area due to rich quantities of iron ore in this area. The method is found to perform well and the results indicate that the announcement of evacuation has had a positive effect on prices in the directly affected region. The time of capitalization corresponds roughly to when it is expected to. Capitalization; expropriation; hedonic model; information