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Estimating the technology of cognitive and noncognitive skill formation

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  • Flavio Cunha
  • James Heckman

    (Institute for Fiscal Studies and University of Chicago)

  • Susanne Schennach

    ()
    (Institute for Fiscal Studies and University of Chicago)

Abstract

This paper formulates and estimates multistage production functions for children's cognitive and noncognitive skills. Skills are determined by parental environments and investments at different stages of childhood. We estimate the elasticity of substitution between investments in one period and stocks of skills in that period to assess the benefits of early investment in children compared to later remediation. We establish nonparametric identification of a general class of production technologies based on nonlinear factor models with endogenous inputs. A by-product of our approach is a framework for evaluating childhood and schooling interventions that does not rely on arbitrarily scaled test scores as outputs and recognizes the differential effects of the same bundle of skills in different tasks. Using the estimated technology, we determine optimal targeting of interventions to children with different parental and personal birth endowments. Substitutability decreases in later stages of the life cycle in the production of cognitive skills. It is roughly constant across stages of the life cycle in the production of noncognitive skills. This finding has important implications for the design of policies that target the disadvantaged. For most configurations of disadvantage, it is optimal to invest relatively more in the early stages of childhood than in later stages.

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Paper provided by Centre for Microdata Methods and Practice, Institute for Fiscal Studies in its series CeMMAP working papers with number CWP09/10.

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Date of creation: Apr 2010
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Handle: RePEc:ifs:cemmap:09/10

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  15. Petra E. Todd & Kenneth I. Wolpin, 2003. "On The Specification and Estimation of The Production Function for Cognitive Achievement," Economic Journal, Royal Economic Society, vol. 113(485), pages F3-F33, February.
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