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The Production of Human Capital: Endowments, Investments and Fertility

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  • Anna Aizer
  • Flávio Cunha

Abstract

We study how endowments, investments and fertility interact to produce human capital in childhood. We begin by providing empirical support for two key features of existing models of human capital: that investments and existing human capital are complements in the production of later human capital (dynamic complementarity) and that parents invest more in children with higher endowments due to the complementarity between endowments and investments (static complementarity). For the former, we exploit an exogenous source of investment, the launch of Head Start in 1966, and estimate greater gains from preschool in the IQ of those with the highest stocks of early human capital, consistent with dynamic complementarity. For the latter, we are able to overcome the potential endogeneity and measurement error associated with traditional measures of endowment based on health at birth. When we do, we find that parents invest more in highly endowed children. Moreover, we find that the degree of reinforcement increases with family size. Thus, an increase in quantity leads not only to a decline in average quality (the quantity-quality tradeoff) but to an increase in the variation in quality, due to both greater variation in endowments (from more children) and greater reinforcing investments. These findings can be explained by extending the quantity-quality trade-off model to include heterogeneous child endowments and parental preferences that feature complementarity between quality and quantity and moderate aversion to inequality in child human capital within the household.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18429.

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Date of creation: Sep 2012
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Handle: RePEc:nbr:nberwo:18429

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  1. James J. Heckman & Rodrigo Pinto & Peter A. Savelyev, 2012. "Understanding the Mechanisms through Which an Influential Early Childhood Program Boosted Adult Outcomes," NBER Working Papers 18581, National Bureau of Economic Research, Inc.
  2. Paxson, Christina & Schady, Norbert, 2005. "Cognitive development among young children in Ecuador : the roles of wealth, health and parenting," Policy Research Working Paper Series 3605, The World Bank.
  3. Heckman, James J. & Moon, Seong Hyeok & Pinto, Rodrigo & Savelyev, Peter & Yavitz, Adam, 2010. "Analyzing Social Experiments as Implemented: A Reexamination of the Evidence from the HighScope Perry Preschool Program," IZA Discussion Papers 5095, Institute for the Study of Labor (IZA).
  4. Gabriella Conti & Christopher Hansman & James J. Heckman & Matthew F. X. Novak & Angela Ruggiero & Stephen J. Suomi, 2012. "Primate Evidence on the Late Health Effects of Early Life Adversity," NBER Working Papers 18002, National Bureau of Economic Research, Inc.
  5. Janet Currie & Duncan Thomas, 1999. "Early Test Scores, Socioeconomic Status and Future Outcomes," NBER Working Papers 6943, National Bureau of Economic Research, Inc.
  6. Susanne Schennach & James Heckman & Flavio Cunha, 2007. "Estimating the Technology of Cognitive and Noncognitive Skill Formation," 2007 Meeting Papers 973, Society for Economic Dynamics.
  7. Joshua Angrist & Victor Lavy & Analia Schlosser, 2010. "Multiple Experiments for the Causal Link between the Quantity and Quality of Children," Journal of Labor Economics, University of Chicago Press, vol. 28(4), pages 773-824, October.
  8. Joseph Price, 2008. "Parent-Child Quality Time: Does Birth Order Matter?," Journal of Human Resources, University of Wisconsin Press, vol. 43(1).
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Cited by:
  1. Lundberg, Shelly & Pollak, Robert, 2013. "Cohabitation and the Uneven Retreat from Marriage in the U.S., 1950-2010," IZA Discussion Papers 7607, Institute for the Study of Labor (IZA).
  2. Michael Baker & Kevin Milligan, 2013. "Boy-Girl Differences in Parental Time Investments: Evidence from Three Countries," NBER Working Papers 18893, National Bureau of Economic Research, Inc.
  3. Tom S. Vogl, 2012. "Education and Health in Developing Economies," Working Papers 1453, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..

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