Hydro-economic equilibrium with climatic variability in interconnected local economies

This study addresses the challenge of unsustainable water use in regional economies, where productive activities and water availability are unevenly distributed in space and time. The objective is to assess the economic implications of this spatial mismatch and to provide a tool for identifying feasible pathways toward sustainable water use. Focusing on the case of Tuscany, Italy, we develop an interregional input–output (IO) model extended to include hydrological variability and a detailed representation of economic interdependencies across Labor Market Areas (LMA). The model explicitly integrates hydrology and economics, enabling the estimation of subregional water scarcity thresholds and the economic cost of overexploitation. A key and novel contribution of this study is the development of an original indicator—the Cost of Hydro-Economic Equilibrium (CHEE)—which quantifies, in monetary terms, the value of production currently sustained by unsustainable water use. This allows for the identification of areas under pressure and supports the design of targeted water management strategies, including improvements in water-use efficiency and investment in infrastructure. The results confirm that Tuscany exhibits significant spatial heterogeneity in water scarcity, with several local economies operating under hydrological stress. The study offers a framework to evaluate the opportunity cost of transitioning toward sustainable water allocation and provides a foundation for future applications such as the accounting and valuation of water-related natural capital, contributing to both scientific understanding and evidence-based public policy.