On linking microsimulation and computable general equilibrium models using exact aggregation of heterogeneous discrete-choice making agents

Riccardo Magnani (1) , Jean Mercenier (2)

1 CEPII - Centre d'Etudes Prospectives et d'Informations Internationales
2 ERMES - Equipe de recherche sur les marches, l'emploi et la simulation

Our paper contributes by bridging the gap between the (partial equilibrium) microsimulation and the computable general equilibrium (CGE) approaches, by making use of exact aggregation results from the discrete choice literature: heterogeneous individuals choosing within a set of discrete alternatives may be aggregated into a representative agent with (possibly multiple-level) constant elasticity-of-substitution/transformation preferences/technologies. These results therefore provide a natural link between the two policy evaluation approaches. We illustrate the usefulness of these results by evaluating potential effects of population ageing on the dynamics of income distribution and inequalities, using a simple overlapping generations model where individuals make leisure/work decisions, and choose a profession among a discrete set of alternatives.

Mots clés: Microsimulation; CGE models; Exact aggregation; Discrete choice; Nested multinomial logit; Population ageing; Income inequality

Domaines: Economies et finances

Riccardo Magnani, Jean Mercenier. On linking microsimulation and computable general equilibrium models using exact aggregation of heterogeneous discrete-choice making agents. Economic Modelling, 2009, 26 (3), pp.560-570. ⟨halshs-00627736⟩