This study examines the connection between groundwater and surface water in the design of
transboundary compacts. A steady‐state hydro‐economic model is developed and applied to a river basin in the
United States. Simulations demonstrate that when a water compact is designed to govern only surface water, the
assigned allocations are nonbinding and lead to decreased river‐flow in the downstream region. When the
compact is designed to govern surface water and groundwater usage combined, however, the assigned
allocations are binding and changes in them can increase overall net benefits, with the extent dependent on
flexibility in compact design.