Population Density and Infrastructure Development

We propose a model which has the following features: (1) there is a publicly accessible transport technology, which is more advanced when there is more labor specialized in it; (2) a high population density facilitates the development of the transport technology; (3) an improved transport technology facilitates a finer division of labor, which in turn increases per capita income. These features are compatible with the phenomena of economic development described in Boserup (1981). We also show that as long as the infrastructure sector can charge the users and individuals are free to choose jobs, the competitive equilibrium will be Pareto optimal