Water storage reservoirs can be either sustainable or exhaustible. In the absence of sediment management, reservoir storage is an exhaustible resource with long-term consequences. Previous economic planning of reservoirs essentially guaranteed non-sustainable solutions. This paper describes a new economic paradigm for economic assessments of new and existing reservoirs. The new economic paradigm provides a framework for comprehensive accounting of economic benefits and costs over a sufficiently long period of analysis, including cost estimates for dam decommissioning and lost benefits where sediments are not sustainably managed. A case study applies this framework to a hypothetical western US reservoir to quantitatively compare the status quo (i.e., no sediment management) with a selection of sediment management alternatives. Results indicate that sustainable sediment management can be less expensive than the consequences of ignoring sedimentation (e.g., eventual dam decommissioning and replacing lost storage capacity). Additional work shows that beginning sediment management within a decade of reservoir construction prevents the most severe impacts of sedimentation. An investigation of alternative discounting approaches indicates that the approach employed can have a significant impact on economic results.