Interbasin water transfers and the size of regions: An economic geography example

A two-region, spatial economic model is developed to explore the implications of interregional water transfers on household migration and the intraregional distribution of land between urban and agricultural use when there are agglomeration economies in urban production. A particular example is considered where an arid region lacks water resources but has differing levels of amenities and agricultural productivity relative to a water rich region. The conditions for the stability of both the dispersed and concentrated equilibria are found. Numerical simulations provide a graphical example of the set of stable equilibria in the parameter space. Finally, the model is calibrated using data on household consumption and agricultural production patterns in the US.