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Intergenerational Long Term Effects of Preschool - Structural Estimates from a Discrete Dynamic Programming Model

  • James J. Heckman
  • Lakshmi K. Raut

This paper formulates a structural dynamic programming model of preschool investment choices of altruistic parents and then empirically estimates the structural parameters of the model using the NLSY79 data. The paper finds that preschool investment significantly boosts cognitive and non-cognitive skills, which enhance earnings and school outcomes. It also finds that a standard Mincer earnings function, by omitting measures of non-cognitive skills on the right hand side, overestimates the rate of return to schooling. From the estimated equilibrium Markov process, the paper studies the nature of within generation earnings distribution and intergenerational earnings and schooling mobility. The paper finds that a tax financed free preschool program for the children of poor socioeconomic status generates positive net gains to the society in terms of average earnings and higher intergenerational earnings and schooling mobility.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19077.

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Date of creation: May 2013
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Handle: RePEc:nbr:nberwo:19077
Note: CH ED TWP
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  1. James J. Heckman, 1999. "Policies to Foster Human Capital," NBER Working Papers 7288, National Bureau of Economic Research, Inc.
  2. Victor Aguirregabiria & Pedro Mira, 1999. "Swapping the Nested Fixed-Point Algorithm: a Class of Estimators for Discrete Markov Decision Models," Computing in Economics and Finance 1999 332, Society for Computational Economics.
  3. Janet Currie & Duncan Thomas, 1993. "Does Head Start Make a Difference?," NBER Working Papers 4406, National Bureau of Economic Research, Inc.
  4. Kazuo Nishimura & Lakshmi K. Raut, 2007. "School Choice and the Intergenerational Poverty Trap," Review of Development Economics, Wiley Blackwell, vol. 11(2), pages 412-420, 05.
  5. Flavio Cunha & James J. Heckman & Lance Lochner & Dimitriy V. Masterov, 2005. "Interpreting the Evidence on Life Cycle Skill Formation," NBER Working Papers 11331, National Bureau of Economic Research, Inc.
  6. Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
  7. Janet Currie, 2001. "Early Childhood Education Programs," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 213-238, Spring.
  8. Hanushek, Eric A, 1986. "The Economics of Schooling: Production and Efficiency in Public Schools," Journal of Economic Literature, American Economic Association, vol. 24(3), pages 1141-77, September.
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