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Across the globe, the prospect of increasing water demands coupled with the potential for reduced water availability is calling for implementation of a range of technological, institutional, and economic instruments to address growing water scarcity. Hydro-economic models (HEMs), which integrate the complex hydrologic and economic interrelationships inherent in most water resources systems, provide an effective means of diagnosing and devising solutions to water-related problems across varied spatial and temporal scales. HEMs are powerful tools for examining potential future changes in water resources systems, and can be used to test the effects of infrastructural and policy responses developed to cope with water management problems. This study reviews recent advances in hydro-economic modeling and characterizes the types of issues that are typically explored in the hydro-economic modeling literature. HEMs are broadly classified into two categories on the basis of their structure: node-based river basin (simulation or optimization) models and economy-wide (input-output or Computable General Equilibrium) models that account for processes linked to water resources. The review highlights the primary differences in the applications and interpretations obtained using these approaches, analyzes the distribution of questions that HEMs have been used to answer, and discusses previous work and efforts to integrate across model types. Our findings suggest that additional efforts are needed to more realistically account for the range and complexity of interlinkages between water systems and society, particularly with regards to ecology and water quality, and the food and energy sectors. Additionally, the forces that depend on water and operate on the broader economy, for example in interregional trade should be investigated further. Moreover, effects on the distribution of income within countries, and on migration should be considered in basin management modeling studies. In effect, because of the inherent complexity in the economic dynamics underlying many water systems, we argue that such tools can challenge intuition and generate critical insights that are relevant to more effective management of transboundary water resources. [ABSTRACT FROM AUTHOR]