This book reviews the uses and abuses of microsimulation models - large, complex models that produce estimates of the effects on program costs and who would gain and who would lose from proposed changes in government policies ranging from health care to welfare to taxes. Volume 1 is designed to guide future investment in modeling and analysis capability on the part of government agencies that produce policy estimates. It will inform congressional and executive decision makers about the strengths and weaknesses of models and estimates and will interest social scientists in the potential of microsimulation techniques for basic and applied research as well as policy uses. The book concludes that a "second revolution" is needed to improve the quality of microsimulation and other policy analysis models and the estimates they produce, with a special emphasis on systematic validation of models and communication of validation results to decision makers. PANEL TO EVALUATE MICROSIMULATION MODELS FOR SOCIAL WELFARE PROGRAMS ERIC A. HANUSHEK (Chair), Department of Economics, University of Rochester  DAVID M. BETSON, Department of Economics, University of Notre Dame LYNNE BILLARD, Department of Statistics, University of Georgia  SHELDON DANZIGER, Institute of Public Policy Studies, University of Michigan  EUGENE P. ERICKSEN, Department of Sociology, Temple University  THOMAS J. ESPENSHADE, Office of Population Research, Princeton University  HARVEY GALPER, KPMG Peat Marwick, Washington, D.C.  LOUIS GORDON, Department of Mathematics, University of Southem Califomia  KEVIN M. HOLLENBECK, W.E. Upjohn Institute for Employment Research, Kalamazoo, Mich.  GORDON H. LEWIS, School of Urban and Public Affairs, Carnegie Mellon University   ROBERT MOFFITT, Department of Economics, Brown University GAIL R. WILENSKY, Health Care Financing Administration, U.S. Department of Health and Human Services [served until January 1990]   MICHAEL C. WOLFSON, Analyfical Studies Branch, Statistics Canada CONSTANCE F. CITRO, Study Director MICHAEL L. COHEN, Consultant CHRISTINE M. ROSS, Research Associate AGNES E. GASKIN, Administrative Secretary CONTENTS ACKNOWLEDGMENTS SUMMARY   Improving the Tools of Policy Analysis: Investment Priorities 2   The Role of Microsimulation as a Policy Analysis Tool 8   Recommendations for Improving Policy Analysis 13   Recommendations for Microsimulation Models 15 1 INTRODUCTION     A Scene in Washington, D.C. 21   The Tools of Policy Analysis 24   The Panel Study 26   PART I -- INFORMATION FOR SOCIAL WELFARE POLICY: TOWARD A SECOND REVOLUTION   2 THE SEARCH FOR USEFUL INFORMATION     The First Information Revolution 35   Policy Analysis: Between Social Science Research and Politics 38   A Case Study of Policy Analysis: The Family Support Act of 1988 41 3 IMPROVING THE TOOLS AND USES OF POLICY ANALYSIS     A Strategy for Investment 52   Data Quality and Availability 55   Validation 72   Documentation and Communication of the Results of Policy Analysis 84 APPENDIX: MODELS, UNCERTAINTY, AND CONFIDENCE INTERVALS   Models 89   Uncertainty of an Estimate 90   Conditional Versus Unconditional Confidence Intervals 93   An Illustrative Diagram 95 PART II -- THE ROLE OF MICROSIMULATION AS A POLICY ANALYSIS TOOL4. MICROSIMULATION MODELS: THEN AND NOW   Basic Elements of Microsimulation Models 101   Development of Microsimulation Modeling for Policy Analysis 107   Role and Current Status of Microsimulation: Findings 114 5 DATABASES FOR MICROSIMULATION     Data Quality: The March CPS 125   Strategies for Treating Missing and Erroneous Data, 132 The Promise of SIPP 137   Recommendations for Improving Data Quality, 1396. MODEL     DESIGN AND DEVELOPMENT     Model Design Principles and Practices 155   Current Microsimulation Model Design 161   Strategic Directions for Microsimulation Model Development 164 7 COMPUTING TECHNOLOGY AND MICROSIMULATION     The Evolution of Microsimulation Computing Platforrns 183   New Developments in Computing Technology 185   Future Directions for Computing in Microsimulation 191 8 MICROSIMULATION MODELING OF HEALTH CARE, RETIREMENT INCOME, AND TAX POLICIES     Health Care Policies 195   Retirement Income Policies, 212   Tax Policies, 2199. VALIDATION     Corroboration as a Stand-in for Validation 233   Techniques of Model Validation 235   Review of Validation Studies 241   A Validation Study of TRIM2: The Panel's Experiment 248   Strategies for Validating Microsimulation Models: Recommendations 259 10 DOCUMENTATION AND ARCHIVING     Standards for Model Documentation 266   A Documentation Case Study 268   Recommendations 270 11 THE MICROSIMULATION MODELING COMMUNITY     Relationships Among Federal Agencies 274   Policy Analysis Agencies and Their Suppliers 278   Policy Analysis Agencies and Decision Makers' Staffs 280   The Role of Research 281 APPENDIX: MICROSIMULATION MODELS, DATABASES, AND MODELING TERMS   Models 290   Databases 298   Modeling Terms 302 GLOSSARY OF ACRONYMS REFERENCES BIOGRAPHICAL SKETCHES OF PANEL MEMBERS AND STAFF