Increasing competition for water across sectors increases the importance of the river basin as the appropriate unit of analysis to address the challenges facing water resources management; and modeling at this scale can provide essential information for policymakers in their resource allocation decisions. This paper introduces an integrated economic-hydrologic modeling framework that account~ for the interactions between water allocation, farmer input choice, agricultural productivity, non-agricultural water demand, and resource degradation in order to estimate the social and economic gains from improvement in the allocation and efficiency of water use. The model is applied to the Maipo river basin in Chile. Economic benefits to water use are evaluated for different demand management instruments, including markets in tradable water rights, based on production and benefit functions with respect to water for the agricultural and urban-industrial sectors. © 2000 Elsevier Science B.V. All rights reserved.