We develop the first spatially integrated economic-hydrological model of the western Lake Erie basin that explicitly links economic models of farmers' field-level Best Management Practice (BMP) adoption choices with the Soil and Water Assessment Tool (SWAT) model to evaluate the cost-effectiveness of nutrient management policies. We quantify the tradeoffs between phosphorus reduction and policy costs and find that a hybrid policy that couples a fertilizer tax with cost-share payments for subsurface placement is the most cost-effective. We also find that economic adoption models can overstate the potential for nutrient reduction by ignoring biophysical complexities and thus demonstrate the importance of coupling economic and biophysical models for efficient policy design.