Microsimulation modelling

PERU maintains and develops the IPPR Tax-Benefit Model, which is used by most major think-tanks in the UK to estimate the fiscal, distributional and poverty effects of tax and benefit policy. Model users include the Institute of Public Policy Research, Resolution Foundation, Centre for Social Justice, Joseph Rowntree Foundation, New Economics Foundation, Legatum Institute and Fraser of Allander Institute.

PERU also provides expert advice to the Health Foundation on its project to build a dynamic microsimulation model to estimate future demand for healthcare.

Economic analysis of projects

We work with organisations using a Costing methodology, which captures three main types of cost:

• Direct project expenditure
• Estimates of the value of public resources used by the intervention
• Estimates of the costs of services or facilities used by the intervention that are free or discounted

These cost data can then form the basis for a variety of economic analyses including Social Return on Investment (SROI) and long-term models of economic return. Two methodologies we use regularly are Cost-Benefit Analysis (CBA) or a Break-even Analysis.

Cost-Benefit Analysis – This is an assessment of the benefit-cost ratio associated with any intervention and requires a clear understanding of the intervention being examined, in particular how it achieves a particular outcome. To calculate the cost-benefit ratio the following three pieces of data are then required;

• The extra outcome achieved by the intervention compared with the alternative intervention (the incremental effect, which will come from the impact evaluation);
• The economic value of these outcomes, which will be derived from existing, published studies; and
• The extra cost of implementing the intervention compared with an alternative intervention (the incremental cost)

Break-even analysis – In the event that the impact evaluation is inconclusive and we are unable to identify an incremental effect for the intervention we could use a break-even analysis. This demonstrates how the costs saved as a result of the intervention vary depending upon the impact the intervention has. This can be used to determine the minimum effect required for the costs saved as a result of the intervention to outweigh the cost of the intervention. We can then use existing published evidence (from a similar project) to assess whether the project has the potential to achieve the level of impact required for it to ‘break-even’.