The need for regional economic models for benefit-cost evaluation of non-federally financed water plans is discussed. Input-output, econometric, and widely used programming methods all have shortcomings. A conceptual framework is proposed to measure Regional Economic Development (RED) benefits from water projects using a two stage procedure which combines mathematical programming production models and regional income accounting measures. The proposed two stage framework separately accounts for (1) resource hiring decisions made by regional firms which are motivated by profits, and (2) RED benefits measurement, which is generally viewed as important to those who appraise regional resource projects. The first stage fixed resources (e.g. water, capital stock), supply schedules for purchased factors, and the export demand schedule. The solution to the firs stage model generates equilibrium export demand prices/ quantities and regional input usage patterns. Based on the resource usage patterns generated from the first stage, RED benefits from water supply increments are computed in the second stage.