Blending Experimental Economics and Living Laboratories in Water Resource Management

The increasing pressure on global water supplies from over-exploitation, drought, and pollution necessitates efficient and sustainable water management. Integrated Water Resource Management (IWRM) strategies have shown effectiveness in decision support, but a deeper integration of economic and participative methodologies is needed. This research reviews the core characteristics and directions of experimental economics and Living Labs (LLs) and it aims to address three research questions, namely, how the participatory, real-world environment of living laboratories can be incorporated into the controlled, hypothesis-driven nature of experimental economics; what is the significance of behavioural insights that are derived from experimental economics in the design and implementation of living labs; and how these two approaches can be merged under one framework. The focus of this paper is the improvement of water resource management through collaborative and stakeholder-driven innovation. Living Labs provide authentic environments for co-creation, allowing scientists and stakeholders to address water-related issues like supply, demand, and shortage. These environments connect controlled experimental conditions with real applications, providing comprehensive insights into behavioural reactions and policy formulation. LLs can enhance and be strengthened by economic methodologies, particularly in water valuation through integrated frameworks accounting for environmental externalities and opportunity costs. Finally, this paper shows that integrating behavioural insights and experimental approaches within LLs improves the external validity of experimental economics by putting interventions in real-world settings.