The Namoi river catchment in northern NSW is an important irrigation region. Water resources in this region are increasingly stressed. Both surface and groundwater supplies are overallocated in many areas of the catchment. Management options to reduce allocations in line with available supply and environmental requirements are expected to have long term social, economic and environmental implications. One water resource, off-allocation water, is currently unallocated. This means that no user is currently given a property right to this resource and it is available for re-allocation to alternative users, including the environment. This paper outlines an integrated economic-hydrologic modelling tool which has been developed to estimate regional scale economic and environmental trade-offs associated with alternative water allocation policies. A detailed description of the economic modelling component is provided. In particular the way in which capital investment decisions are treated in the model are described. The sensitivity of the model to assumptions about the cost of investing in additional capital is shown and results for the application of the model to a number of policy scenarios are presented.


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