Introduction and overview

The product of many model building exercises is often seen as simply another economic model to add to a collection rather than the birth of an important tool capable of generating better information for answering economic questions. The concern that most modeling activity is conducted primarily for the benefit of the economic modeler has been expressed frequently (Dee 1994). Much attention is focused on modeling activity rather than on results generated from models. Are the results generated from applied general equilibrium models (AGE) to be taken seriously? This chapter argues that if results from AGE analyses are to gain greater credibility, further work on model validation is required.

There are many reasons for the current level of skepticism surrounding large-scale modeling efforts. In operationalizing such models, one is required to make many assumptions regarding the data base, behavioral equations, and parameters. This opens AGE-based research to widespread criticism. AGE modelers may find most of these assumptions to be necessary and defensible, yet this provides little assurance of results to consumers – especially those who are already skeptical of large-scale modeling. This author believes that evaluation of a model, solely via the scrutiny of its assumptions, is not a very useful exercise. Of more interest to consumers of AGE results is whether or not a model is capable of producing a proven set of results deemed accurate and reliable.