Establishing a holistic approach to manage floods and droughts is essential considering the different hydrological conditions. This work aimed to demonstrate how the integrated management of floods and droughts (IMFD) can increase sustainability and decrease the vulnerability of reservoirs against water-related disasters. To do so, a non-integrated management of floods and droughts (NMFD) is compared to an IMFD approach for the optimal operation of a reservoir (Doroudzan dam) to evaluate the sustainability of each scenario, especially the environmental water demand for Bakhtegan lake. Doroudzan dam provides water for different users, especially the environmental water demand. The IMFD and NMFD are differentiated through the development of industrial activities and the construction of a new regulatory dam, respectively. Each management scenario is tested under three hydrological conditions, i.e., dry, normal, and wet, which are determined by the standardized runoff index (SRI). Additionally, in the IMFD scenario, optimal cropping patterns are proposed to farmers by policymakers to increase water use efficiency. The heterogeneity in farmers’ response to adopting these cropping patterns is simulated through a well-known behavioral theory, prospect theory (PT). A novel optimization algorithm, NSGA-III, is utilized to determine the optimal operation of the reservoir and a bankruptcy scenario is utilized to share released water from the reservoir between the involved stakeholders. Results show the superiority of the IMFD scenario against the NMFD scenario in terms of decreasing water shortage as well as agricultural and environmental vulnerability, especially in dry conditions due to implementing more sustainable solutions. The average annual financial wealth generated by the IMFD scenario is greater than that of the NMFD scenario by about 68% through development in the industrial activities as a more profitable sector. Also, the utilization of PT shows how downstream and upstream farmers behave distinctly towards policymakers’ recommendations because they have different viewpoints about the amount of available water.
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