Creative Destruction: Barriers to Urban Growth and the Great Boston Fire of 1872

Abstract:

Historical city growth, in the United States and worldwide, has required remarkable transformation of outdated durable structures. Private land-use decisions may generate persistent inefficiencies, however, due to externalities and various rigidities. This paper analyzes new plot-level data in the aftermath of the Great Boston Fire of 1872, estimating substantial economic gains from the opportunity for urban redevelopment in rapidly growing areas. An important mechanism appears to be positive externalities from neighbors’ reconstruction. Strikingly, gains from this opportunity for urban redevelopment were sufficiently large that increases in land values were comparable to the value of all burned buildings.