Summary

The management of water resources systems involves influencing and improving the interaction among three subsystems: natural (biophysical), economic, and legal-institutional frameworks. In this sense, hydroeconomic models have the advantage of analyzing water management problems through models that explicitly represent these interactions. The combination of economic, engineering, and environmental aspects of management provides better-informed results for decision making in the complex environment in which water management operates.

Hydroeconomic models (HEMs) are spatially distributed management models of a river basin or system in which both water supply and demands are economically and hydrologically characterized. This definition is sometimes relaxed to refer in general to water resources management models that include the economic component. In HEMs, the management and allocation of water is either driven by the economic value of water or economically assessed, which contributes to policy analysis and reveals opportunities for better economic management. The traditional view of water demand as a fixed requirement to be satisfied is modified by a view of demand that adapts to the changes in the scarcity of water. The integration of economics in HEMs allows the identification of the best combination of water supply and demand management options within a consistent framework. As water scarcity increases worldwide, water managers will increasingly turn to tools that reveal solutions to increase efficiency in water use, fostering improved economic development through better-informed policy choices.