This article describes a hydrologic–economic optimization model for allocating available river flow between competing off- and in-stream demands, based on the marginal benefits (MBs) of sectoral water uses in a segment of the Teesta River in Bangladesh. Irrigation, capture fishery and navigation are the main direct water uses considered. The value of irrigation water was estimated using the residual imputation method. Losses in yield caused by lowered irrigation supply, resulting from reduced river flow, formed the basis for establishing the total and MB functions for off-stream river water use (irrigation). Total and MB functions for in-stream water use (capture fishery, navigation) were developed using field survey data of beneficiaries' income as a function of river flow. Analysis was enhanced by applying AQUARIUS, which allocates water between users to maximize consumer surplus based on MB functions. Model results show that in-stream uses could not compete with off-stream uses in the case of the Teesta, as substantial benefit was obtained from irrigation. Environmental flow to safeguard river health and in-stream use was considered to be a constraint in the optimization, which results in a sizeable reduction in irrigation benefit with a small increase in in-stream benefit. The necessary trade-offs between economic efficiency and environmental protection are depicted, providing insight into a justifiable water allocation strategy for the Teesta.

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