The amount of groundwater and surface water consumed in a river basin constitutes the blue water footprint (BWF). To safeguard the environment, it has been suggested to set a cap to the BWF based on blue water availability (BWA). BWA depends on the precipitation that becomes runoff and the need to reserve environmental flow requirements. Previous studies determined BWF caps based on the use-what-is-there principle, which assumes that all BWA in a sub-catchment may be consumed locally, without the need to reserve water for downstream. However, BWA in an upstream sub-catchment does not have to be consumed locally but could be consumed downstream instead, thereby mitigating blue water scarcity in downstream areas. Therefore, this study aims to investigate the effect of alternative allocation principles – that account for downstream demands – to set monthly BWF caps per sub-catchment on BWS levels across a large river basin. We take the Yellow River basin for the period 2010 to 2014 as a case study to evaluate four scenarios of BWF cap-setting. We compare the ‘natural’ and ‘reservoir’ scenario that both apply the use-what-is-there principle to determine the effects of reservoirs on BWF caps. We then apply two alternative allocation principles that take relative population size (‘population-based’ scenario) and historic blue water demand (‘demand-based’ scenario) as a basis to determine BWF caps per sub-catchment and compare the effects against the ‘reservoir’ scenario. Our results confirm previous findings on the effects of reservoirs on caps. We further find that blue water scarcity increases from upstream to downstream under the use-what-is-there principle. Both the population- and demand-based scenarios reduce upstream-downstream differences in the degree of blue water scarcity. The demand-based scenario is most effective in this respect. On the other hand, the population-based scenario leads to the smallest upstream-downstream differences in BWA per capita. The results feed into a discussion on alternative approaches to set BWF caps in a large river basin which needs to take place for BWF caps to become effective and practical concepts in policy making.