Bridging the Nexus: Policy and Welfare Dimensions in Hydro-economic Models

Abstract

Europe’s water resources face growing pressures from climate change and competing demands. Addressing these pressures requires integrated approaches that capture interdependencies among sectors. This paper develops a unified hydro-economic modeling framework that embeds Water–Energy–Food–Ecosystem (WEFE) linkages directly into water policy analysis. Unlike existing approaches, the framework systematically combines hydrological processes, economic behavior, and policy instrument design, enabling analysis of cross-sectoral trade-offs and welfare outcomes. Its modular structure makes it suitable for both detailed numerical models and stylized applications. We illustrate its use with two European river basins, the Júcar in Spain and the Upper Main in Germany, showing how water trading and pricing policies can be evaluated within a nexus perspective. These cases demonstrate how the framework operationalizes nexus thinking and provides a transparent, policy-relevant basis for more coherent and resilient water governance.

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