The Role of Microsimulation in the Development of Public Policy

Abstract

This chapter seeks to provide a brief introduction to the method of microsimulation and its utility for the development of public policy. Since the inception of microsimulation in the 1950s, its use for policy purposes has extended from the economic to other domains as data availability and technological advances have burgeoned. There has also been growing demand in recent times to address increasingly complex policy issues that require new approaches. Microsimulation focuses on modelling individual units and the micro-level processes that affect their development, be they people’s lives or other trajectories. It comes in various types, for example along the dimensions of arithmetical or behavioural, and static or dynamic. It has its own distinctive model-building process, which relies on empirical data and derived parameters with an insertion of chance to simulate realistic distributions. The particular utility of microsimulation for policy development lies in its ability to combine multiple sources of information in a single contextualised model to answer ‘what if’ questions on complex social phenomena and issues.