Integrating economic and hydrological scales to develop model-based indicators of water scarcity in local economies

Traditional models that link economic activity and water resources often rely on economic spatial units, overlooking the hydrological significance of river basins—the fundamental units for water-related assessments. This study analyzes water scarcity of local economies through an integrated hydro-economic approach that harmonizes economic and hydrological scales. Specifically, the analysis focuses on five Local Labor Systems located in the upper Arno River basin, Tuscany, Italy. Spatial harmonization is achieved by aligning sub-basins with their corresponding LLS. Water supply is modeled using the Soil and Water Assessment Tool, while blue, green, and grey water demand is estimated through an environmentally extended MultiRegional Input–Output model. These models interact through two key endogenous effects: (i) adjustments in agricultural blue water withdrawals based on green water availability, and (ii) changes in grey water requirements due to variations in water supply. The model characterizes green water availability, allowing for a more realistic representation of agricultural water demand dynamics compared to models that lack physical hydrological integration. Based on different approaches to water supply and demand, five water scarcity indicators are developed for each LLS, two of which are proposed in this study. Notably, a green water scarcity index is introduced—a metric often omitted in water stress assessments. The results reveal the high hydrological and economic heterogeneity within the study area, providing a solid foundation for characterizing multidimensional water scarcity. Moreover, the adopted approach highlights the value of integrating biophysical and economic models within a spatially coherent framework to inform local policies.