Abstract. Peak and volume of river flows are functions of the catchment surface characteristics. This means that any impacts to the run-off regime (for example surface sealing and river training) could affect people and land users in the lower system. The costs of flood defence or compensation of damages are usually not included in the economic calculation of the upstream land owner or land user. In economic terms these effects are referred to as unidirectional externalities. This paper presents a methodology to identify externalities related to land use and run-off and describes the relevant cause-effect relations and how they can be modelled. The Herzogbach is a small tributary of the Danube River in Lower Bavaria. It is located in a rural area, dominated by intensive farming practices. A combination of hydrological and hydraulic modelling provided the core of the project methodology to allow the interpretation of economic data. Comparisons of damage estimates resulting from different hydrological scenarios based on different land uses, and flood mitigation costs were used to show the economic significance of human impacts.