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Despite major recent advances in socio-hydrology and hydroeconomics research, interdisciplinary methods and models for water policy assessment remain largely concealed to the academic arena. Most river basin authorities still base decision-making on inputs from hydrologic Decision Support Systems (DSS), and have limited information on the economic costs that water policies may impose on the economy. This paper presents a time-variant hierarchical framework that connects a hydrologic module and an economic module by means of two-way feedback protocols. The hydrologic module is designed to fit the AQUATOOL DSS, the hydrologic model used by Spanish river basin authorities to inform decision-making at a basin scale; while the economic module is populated with a Positive Multi-Attribute Mathematical Programming (PMAMP) model that represents the behavior and adaptive responses of irrigators. The proposed hierarchical framework is used to assess the economic repercussions of strengthening irrigation quotas so to achieve minimum environmental flows in the Douro River Basin (Spain) under climate change. Results show that reductions in agricultural water allocations to meet environmental flow requirements create nonlinear incremental profit and employment losses in irrigated agriculture that are on average low to moderate (between −4% and −12.9 % for profit, and between −4.6 % and −12 % for employment, depending on the scenario). During extreme droughts, the abrupt reductions in water availability and agricultural allocations can test farming systems past the breaking point and lead to catastrophic profit and employment losses (>80 %). • Water authorities have limited information on the economic costs of environmental flows. • We couple a microeconomic model with the widely used DSS AQUATOOL. • The coupling relies on a modular, protocol-based, time-variant hierarchical framework. • Water restrictions create nonlinear incremental profit and employment losses. • Extreme droughts test farming systems past breaking point and catastrophic losses. [ABSTRACT FROM AUTHOR]