Lectio magistralis. Investing in our Young People: Lessons from Economics and Psychology

A full understanding of child development draws on knowledge from economics and psychology. Both cognitive and noncognitive capabilities produce a variety of behaviors and outcomes. An emerging literature relates psychological measurements of personality and cognition to economic preference parameters and extends conventional preference specifications in economics. Comparative advantage is an empirically important feature of economic and social life. The same bundle of personal traits has different productivity in different tasks, and people with different bundles sort into tasks according to their comparative advantage. Recent empirical work on the technology of capability formation provides an operational empirical framework that captures these ideas (see Cunha and Heckman, 2009). Capabilities are not invariant traits and are causally affected by parental investment and early social environments. Moreover, capabilities are not solely situational specific. They are stable, but they evolve over the life cycle. Measures of capabilities should standardize for the environments in which they are taken – a basic tenet of science. Otherwise traits may appear to be unstable across situations (Borghans - Duckworth - Heckman - ter Weel, 2008). The technology of capability formation rationalizes a large body of evidence in economics, psychology, and neuroscience. Capabilities are self-productive and crossproductive. Synergies in the technology (2) explain why it is so productive to invest in the cognitive skills of disadvantaged young children but why the payoffs are so low for cognitive investments in disadvantaged older children and are even lower for disadvantaged adults. There is no equity-efficiency trade-off for investment in the capabilities of young disadvantaged children. There is a substantial equity-efficiency trade-off for investment in the capabilities of older disadvantaged children. Later remediation should focus on fostering noncognitive traits related to personality.