History versus Expectations in the Spatial Economy : Lessons from Hiroshima

This paper studies the relative importance of history and expectations in the spatial economy through the atomic bombing of Hiroshima. Newly digitizing granular data on the distribution of economic activities within the city of Hiroshima, we first demonstrate the startling history-independence: the city's center strongly recovered only about five years after being destroyed. We present a dynamic urban economics model that incorporates both history and expectations, allowing us to quantify their relative importance in redevelopment. We find that expectations for rebuilding are self-fulfilling in that they provide a strong incentive to rebuild the city center despite its catastrophic history