Water-Price Differential and the Efficient Population Size and Urban-Rural Composition of a Distant, Large, Arid Island

A low population density and a large distance from civilization centres present a high degree of isolation to the island’s residents. Immigration can reduce the mental and material costs of isolation for the veteran residents, but at the expense of cultural and national cohesion and social harmony; and, in the case of an arid land, also at the expense of the amount and price of water allocated to agriculture. An expected-netbenefit- maximisation model for determining population size and its equilibrium urban-rural composition is developed. It is simulated for various agricultural water prices. The simulation results illustrate the central role of the effect of immigration on the urban unemployment rate in the determination of the island’s efficient population size.