Evaluating Public Programs with Close Substitutes: The Case of Head Start

This paper empirically evaluates the cost-effectiveness of Head Start, the largest early- childhood education program in the United States. Using data from the randomized Head Start Impact Study (HSIS), we show that Head Start draws a substantial share of its participants from competing preschool programs that receive public funds. This both attenuates measured experimental impacts on test scores and reduces the program's net social costs. A cost-benefit analysis demonstrates that accounting for the public savings associated with reduced enrollment in other subsidized preschools can reverse negative assessments of the program's social rate of return. Estimates from a semi-parametric selection model indicate that Head Start is about as effective at raising test scores as competing preschools and that its impacts are greater on children from families unlikely to participate in the program. Efforts to expand Head Start to new populations are therefore likely to boost the program's social rate of return, provided that the proposed technology for increasing enrollment is not too costly.