Agent-Based Modeling in Water Resources Management: A Literature Review and Research Agenda

Water resource management poses persistent challenges for economic policy analysis due to heterogeneous users, institutional fragmentation, and dynamic feedback between human behavior and hydrological systems. Agent-based modeling (ABM) has increasingly been applied to address these limitations, yet its use in water policy analysis remains fragmented across domains and modeling traditions. This paper reviews the application of ABM in water resources management from an applied economics perspective. Focusing on four major policy domains — individual water demand, basin-scale allocation and coordination, groundwater over-extraction, and water pollution regulation — we synthesize how ABM has been used to represent behavioral heterogeneity, institutional interaction, and micro–macro feedback. The review highlights the value of ABM as a policy laboratory for exploring mechanisms, trade-offs, and distributional consequences under decentralized and second-best conditions, while also identifying key methodological challenges related to validation, integration, and behavioral specification. We conclude by discussing implications for future research and policy practice, emphasizing the complementary role of ABM alongside econometric evidence and optimization benchmarks in ex ante water policy assessment.