Improving Information for Social Policy Decisions -- The Uses of Microsimulation Modeling Volume I, Review and Recommendations (1991) / Chapter Skim
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4 Microsimulation Models: Then and Now
4 Microsimulation Models: Then and Now
Pages 101-122
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From page 101... ...
Given the diversity of the population, the complexity of most government programs, and all of the factors that need to be taken into account in developing an appropriate microlevel comparison of current policy with one or more hypothetical alternatives, the microsimulation approach inevitably entails a large number of steps. In Figure 4-1, we sketch the major operations involved in microsimulation modeling, using income-support program models, such as Micro Analysis of Transfers to Households (MATH)
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From page 102... ...
ls . L :~ ~ ~ MlCROSIMULATlON AS A POLICY ANALYSIS TOOL Activities above the dotted line are currently performed by statistical agencies Activities below the line are currently performed by modelers 1 ; I Other Data sources t~ ~ ~ - -=D See Figure 4-2 for dynamic aging FIGURE 4-1 A microsimulation model schematic.
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From page 103... ...
MICROSIMULATION MODELS: THEN AND NOW SIMULATE CURRENT PROGRAMS L_~ Ffor example, SSI, AFDC, food stamps ~— ~:~ ~ r - -, —_ ,, , _— Y _~ l CONTROL TO OUTSIDE TOTALS For example, administrative counts/ characteristics of program participants GENERATE BASELINE DATA FILE t;~1 ~ SIMULATE ALTERNATIVE SCENARIOS Ffor example, increase benefits, reduce ray rates, raise mtimment age _1r ~ Other Data Sources . Accounting Rules for Government Programs LUser Spe if Cations Econometric Analysis SIMULATE BEHAVIORAL RESPONSE I For example, change in labor supply or I health services utilization ' ;~ ~ J :~.i~a .~=,3~::::m GENERATE RESULTS FILE/TABLES ~_ X _ APPLY OUT-OF-MODEL ADJUSTMENTS For example, project to future years, adjust participation rate GENERATE TABULATIONS FOR POLICY MAKERS .
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From page 105... ...
The models may also scale income amounts to agree with inflation forecasts of macroeconomic models and adjust employment status. The major retirement income models use "dynamic" aging techniques: the model itself generates the expected future composition of the population by applying probabilities for birth, death, marriage, employment status change, and other processes to the individual records; Figure 4-2 sketches the basic steps typically involved in dynamic aging.
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From page 106... ...
::::::::::::3 CALIBRATE DATA ! ::~::~::::.:.:::'.::::.~::::: ::::::~:::,:::::::.::.:.:::::::::::::::.::: ::1 FIGURE 4-2 Dynamic aging in microsimulation models.
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From page 107... ...
If the model simulates behavioral responses to program changes, such as the impact on labor supply of changing the AFDC benefit amount or the subsequent feedback effects of a labor supply response, these components of the model would be the next steps. In practice, however, because the complexities of simulating behavioral responses and second-round effects are an order of magnitude greater than the previous steps, these capabilities are infrequently or only very crudely implemented in today's microsimulation models.
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From page 108... ...
Our summary is not exhaustive: we cover some of the major models and their applications, which are referred to throughout our report.1 Before beginning this overview, we note that microsimulation techniques have also had widespread application for policy analysis on the part of state governments and on the part of government agencies abroad. A recent survey indicated that half the states use microsimulation models, in addition to other techniques, to estimate revenues and assess the impact of tax policy changes (Peat Marwick, 1989~.
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From page 109... ...
Recently, a working group of the OECD began a program to coordinate development of improved microsimulation models for public policy analysis on the part of interested member countries. Origins: 1950s to mid-1960s In the 1950s, Guy Orcutt, an economist, developed the concept of analyzing national economic and social policies by simulating behavior for individual decision units, using microlevel databases and probabilistic (Monte Carlo)
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From page 110... ...
in HEW provided support to the Urban Institute to maintain and further develop TRIM and commissioned simulations of a number of welfare reform schemes. At about the same time, Social Security Administration staff developed their own in-house static microsimulation model, the Simulated Tax and Transfer System (STATS)
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From page 111... ...
Somewhat later, the MATH model was also redesigned to improve computational efficiency. Meanwhile, in the late 1970s and early 1980s, proposals were floated to develop comprehensive microsimulation models for the health care sector.
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From page 112... ...
It was used for a number of analyses of retirement income, including simulation of the effects of alternative private pension vesting plans and of the major changes to the social security program that were enacted under the Reagan administration. At the same time, DYNASIM2 was used to analyze the implications of retirement policy changes, including legislation to limit mandatory retirement and the 1983 Social Security Act Amendments.
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From page 113... ...
It was developed by the Social Welfare Research Institute at Boston College and included microsimulation, input-output, and cell-based components. Meanwhile, the Office of Tax Analysis and the congressional Joint Committee on Taxation continued to develop and maintain tax policy models that received extraordinarily heavy use in the policy debate culminating in the Tax Reform Act of 1986.
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From page 114... ...
In this once-over of the history of microsimulation modeling in the United States, we have by no means captured the full extent of the contribution of microsimulation models to the policy analysis function; we have glossed over many important policy uses and also many models developed for more limited purposes.4 However, we hope to have conveyed the flavor of the wide-ranging and important uses that microsimulation models have had in the policy process over the past 20 years. ROLE AND CURRENT STATUS OF MICROSIMULATION: ENDINGS On the basis of our review of the experience to date in using microsimulation models for policy analysis, and considering the comparative merits of other kinds of models, we present our general findings about the current role and status of the microsimulation approach.
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From page 115... ...
We conclude that no other type of model can match microsimulation in its potential for flexible, fine-grained analysis of proposed policy changes. Large-scale macroeconomic models, which are designed to estimate the aggregate effects of policy and program changes, such as the implications for the deficit and for national economic growth of a President's proposed budget, rival microsimulation models in size and complexity.
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From page 116... ...
Indeed, the policy analysis community benefits from having available a wide range of modeling tools to answer a variety of questions and provide alternative perspectives. As we just noted, microsimulation models are distinguished by their capability for fine-g~ined analysis of proposed policy changes; however, this capability is not always needed.
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From page 117... ...
Hence, we believe that microsimulation models merit continued support on the part of federal agencies as an important, if not the only, tool for estimating the impact of proposed program changes. Analytical Costs The capability for detailed analysis provided by microsimulation models comes at a price.
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From page 118... ...
Although in theory the microsimulation models in use today provide better estimates of distributional impacts and at least as good estimates of overall costs and caseloads as other kinds of models, it is not known if this theory is true in fact. There is very little evidence with which to assess the validity of microsimulation model results, that is, how well Hey compare with actual policy outcomes.
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From page 119... ...
The dearth of analysis includes external validation studies that compare model output with measures of truth; internal validation studies that assess the sensitivity of model results to the input data, the specifications for individual modules and their interactions, and other components of the simulation process; and studies that assess the variance of model estimates due to sampling error in the primary database and other sources. Microsimulation models are not alone in lacking systematic validation of their outputs.
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From page 120... ...
Although predicated on the desirability of simulating individual decisions as they are affected by and affect government programs, current microsimulation models are very limited in this regard. This statement applies not only to models that are avowedly "benefit calculators," such as the administrative records-based models of AFDC and food stamp recipients, but also to models that simulate program effects for the broad population.
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From page 121... ...
We strongly recommend that agencies position themselves to build the next generation of microsimulation models around new computer hardware and software technologies that can enhance the cost-effectiveness of this important class of policy analysis tools. Microsimulation Modeling Community The current structure of the microsimulation modeling community is costly.
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From page 122... ...
Having more people who are knowledgeable about microsimulation models and adept in using them can only help in the development of improved models and in the vital process of validating model results. Future Directions In sum, we believe that microsimulation models are important to the policy process, and we anticipate that the need for the kinds of detailed estimates that they can best generate will grow in future years.
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