Strategy, Meet Policy; Policy, Meet Strategy:
Description: Strategy, Meet Policy; Policy, Meet Strategy: Marvin Avery Richard J. Morrison The Ruthen Team International Microsimulation Association On-line December 1 3, 2021 2 Presentation Overview Importance of incentives Contributions of
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slide1. Strategy, Meet Policy; Policy, Meet Strategy: Marvin Avery & Richard J. Morrison The Ruthen Team
International Microsimulation Association On-line December 1 – 3, 2021<br>
slide2. 2 Presentation Overview Importance of incentives
Contributions of traditional longitudinal dynamic microsimulation modeling
Ruthen, software for financial planning, and policy analysis
Using Ruthen-2 for policy applications
Ruthen-3: Extensions and relevance for policy analysis – why you’d want to use it<br>
slide3. Incentives: Perverse Results When Programs Don’t Play Well Together Welfare traps – not worth working
Marriage penalties – better off not marrying, or even divorcing if married
Black and gray labour markets, and crime as a career choice
Encouraging early retirement
Discouraging saving 3<br>
slide4. Traditional Longitudinal Dynamic Microsimulation 4 Many models, many foci, regular feature of conferences since IMA’s inception
Increasing proficiency in capturing demographics, pensions, tax/transfer systems, wealth, and behavioral effects
Address aggregate impacts, adequacy, sustainability
Sub-population breakouts, winners/losers analyses, identification of extreme cases<br>
slide5. Traditional Models Face Challenges Regarding Incentives Data limitations wrt assets, saving & dissaving, and personal preferences
Complexity of asset & debt portfolios
Voluntary saving and DC pensions
Decumulation, and drawdowns during working/accumulation phase
End of life expenses, estate disposition 5<br>
slide6. Ruthen – What It Is Microsimulation package for consequences of financial strategies
Purpose-built language for financial planning objects and actions
Ruthen program executes models written in the Ruthen language
Includes risks, realistic tax/benefits
Emphasis on flexible outputs 6<br>
slide7. Ruthen-2 – How It Works A model describes subject, tax/transfer system, risks, financial instruments, e.g., assets & incomes, and financial strategy
Independent execution of model and strategy many times, e.g., a million
Flexible accumulators record results
Variety of output formats for standard and customized consequences 7<br>
slide8. Ruthen-2 – Major Features Systems perspective necessary – can’t get realistic, meaningful results without it
Meaningful measures, e.g., transactions, net worth, & consumption
Supports paired “apples to apples” comparisons for twinned units
Generalizability through parameterized language objects and functions 8<br>
slide9. Ruthen-2 – Financial Planning Applications: 9 Accumulation and decumulation strategies
Stress tests on planning assumptions
End of life costs and after-tax estates
Risk-sharing financial instruments, e.g., tontines
Changes in standard of living upon survivorship or divorce<br>
slide10. Ruthen-2 Policy Applications - 1 10 Ruthen as a complement to, not substitute for, traditional longitudinal dynamic models
Individual, and government, internal rates of return on private, voluntary saving
Individual, and government, internal rates of return on mandatory public pensions
Consumption impacts of early and delayed take-up of public retirement pensions
Public pension enhancements<br>
slide11. Ruthen-2 Policy Applications - 2 11 Example generation for communications
Choosing desirable financial strategies – sensitivity to tax/transfer systems
Marriage tax – capacity to include survivor pensions & impact of tax treatment of capital gains in housing
More generally: Identifying unintended side effects of proposed policies<br>
slide12. Ruthen-3 Extensions – for Planning and Policy 12 Allow more people, children, and family units in a model, for easier comparisons
Generalize private pensions, and the accumulation of entitlements (DC & DB)
Additional data structures for modeling ease, and greater output customization
Debug facility – breakpoints, inspection
Strategy optimization, using genetic algorithms<br>
slide13. Ignoring Incentives – Why, and When 13 “It’s too complicated, and too expensive, to use the necessary systems perspective. I’m only paid to work on my program.”
“When we want the money, we’ll take it.”
“We don’t have to worry about that. They can’t do the calculations.”
Result: recurring complaints that the public is not using programs and provisions as intended<br>
slide14. Why Would One Use Ruthen in Policy Development? 14 Build realistic custom longitudinal examples for communications strategies
Explore meaningful policy consequences for key or sensitive groups
Compare alternative policies, and conduct sensitivity analyses at individual level
Identify, and understand, perverse effects and incentives – glass box, not black box
Identify, & confirm or refute, potential attacks on existing or proposed policies<br>
slide15. Strategy, Meet Policy; Policy, Meet Strategy 15 Thanks for your attention!
A paper is available for this presentation
Marvin Avery marvin_avery@yahoo.com Rick Morrison: richard.jay.morrison@gmail.com
The Ruthen Team<br>
International Microsimulation Association On-line December 1 – 3, 2021<br>
slide2. 2 Presentation Overview Importance of incentives
Contributions of traditional longitudinal dynamic microsimulation modeling
Ruthen, software for financial planning, and policy analysis
Using Ruthen-2 for policy applications
Ruthen-3: Extensions and relevance for policy analysis – why you’d want to use it<br>
slide3. Incentives: Perverse Results When Programs Don’t Play Well Together Welfare traps – not worth working
Marriage penalties – better off not marrying, or even divorcing if married
Black and gray labour markets, and crime as a career choice
Encouraging early retirement
Discouraging saving 3<br>
slide4. Traditional Longitudinal Dynamic Microsimulation 4 Many models, many foci, regular feature of conferences since IMA’s inception
Increasing proficiency in capturing demographics, pensions, tax/transfer systems, wealth, and behavioral effects
Address aggregate impacts, adequacy, sustainability
Sub-population breakouts, winners/losers analyses, identification of extreme cases<br>
slide5. Traditional Models Face Challenges Regarding Incentives Data limitations wrt assets, saving & dissaving, and personal preferences
Complexity of asset & debt portfolios
Voluntary saving and DC pensions
Decumulation, and drawdowns during working/accumulation phase
End of life expenses, estate disposition 5<br>
slide6. Ruthen – What It Is Microsimulation package for consequences of financial strategies
Purpose-built language for financial planning objects and actions
Ruthen program executes models written in the Ruthen language
Includes risks, realistic tax/benefits
Emphasis on flexible outputs 6<br>
slide7. Ruthen-2 – How It Works A model describes subject, tax/transfer system, risks, financial instruments, e.g., assets & incomes, and financial strategy
Independent execution of model and strategy many times, e.g., a million
Flexible accumulators record results
Variety of output formats for standard and customized consequences 7<br>
slide8. Ruthen-2 – Major Features Systems perspective necessary – can’t get realistic, meaningful results without it
Meaningful measures, e.g., transactions, net worth, & consumption
Supports paired “apples to apples” comparisons for twinned units
Generalizability through parameterized language objects and functions 8<br>
slide9. Ruthen-2 – Financial Planning Applications: 9 Accumulation and decumulation strategies
Stress tests on planning assumptions
End of life costs and after-tax estates
Risk-sharing financial instruments, e.g., tontines
Changes in standard of living upon survivorship or divorce<br>
slide10. Ruthen-2 Policy Applications - 1 10 Ruthen as a complement to, not substitute for, traditional longitudinal dynamic models
Individual, and government, internal rates of return on private, voluntary saving
Individual, and government, internal rates of return on mandatory public pensions
Consumption impacts of early and delayed take-up of public retirement pensions
Public pension enhancements<br>
slide11. Ruthen-2 Policy Applications - 2 11 Example generation for communications
Choosing desirable financial strategies – sensitivity to tax/transfer systems
Marriage tax – capacity to include survivor pensions & impact of tax treatment of capital gains in housing
More generally: Identifying unintended side effects of proposed policies<br>
slide12. Ruthen-3 Extensions – for Planning and Policy 12 Allow more people, children, and family units in a model, for easier comparisons
Generalize private pensions, and the accumulation of entitlements (DC & DB)
Additional data structures for modeling ease, and greater output customization
Debug facility – breakpoints, inspection
Strategy optimization, using genetic algorithms<br>
slide13. Ignoring Incentives – Why, and When 13 “It’s too complicated, and too expensive, to use the necessary systems perspective. I’m only paid to work on my program.”
“When we want the money, we’ll take it.”
“We don’t have to worry about that. They can’t do the calculations.”
Result: recurring complaints that the public is not using programs and provisions as intended<br>
slide14. Why Would One Use Ruthen in Policy Development? 14 Build realistic custom longitudinal examples for communications strategies
Explore meaningful policy consequences for key or sensitive groups
Compare alternative policies, and conduct sensitivity analyses at individual level
Identify, and understand, perverse effects and incentives – glass box, not black box
Identify, & confirm or refute, potential attacks on existing or proposed policies<br>
slide15. Strategy, Meet Policy; Policy, Meet Strategy 15 Thanks for your attention!
A paper is available for this presentation
Marvin Avery marvin_avery@yahoo.com Rick Morrison: richard.jay.morrison@gmail.com
The Ruthen Team<br>