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Historical city growth, in the United States and worldwide, has required remarkable transformation of outdated durable buildings. Private land-use decisions may generate 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 created opportunity for widespread reconstruction. 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 previous value of all buildings burned.