Regulations on post-disaster reconstruction determine cities' long-term land use and building qualities, which are the durable capital for urban growth. The 1871 Chicago Fire and its subsequent ordinance limiting building materials provide exogenous variations in destruction and constrained reconstructions. I find that land values and building quality increased for the destroyed plots rebuilt under the limit ordinance, but not for the areas outside of the limit zone that also experienced destruction. Land value appreciation in Chicago's North Side cannot be attributed to the destruction in the Fire. Regulations on building materials capitalize on land values by leveraging individuals' preferences for endogenous amenities. I develop a model in which residents endogenously sort into the limit zone only when neighborhood effects exist.
Yongyin Liang (Sat,) studied this question.