Search Results

It is well documented that people have diverse abilities, that these abilities account for a substantial portion of the variation across people in socioeconomic success, and that persistent and substantial ability gaps across children from different socioeconomic groups emerge before they start school. The family plays a powerful role in shaping these abilities through genetics, parental investments, and choice of child environments. From a variety of intervention studies, it is known that ability gaps in children from different socioeconomic groups can be reduced if remediation is attempted at early ages. The remediation efforts that appear to be most effective are those that supplement family environments for disadvantaged children. Cunha, Heckman, Lochner, and Masterov (CHLM) present a comprehensive survey and discussion of this literature.1

This chapter examines the evidence on the importance of income and early environments on child outcomes by using a simple economic model of skill formation to organize the evidence summarized here and the findings of related literatures in psychology, education, and neuroscience. The existing economic models of child development treat childhood as a single period.2–4 The implicit assumption in this approach is that inputs into the production of skills at different stages of childhood are perfect substitutes. To account for a large body of evidence, it is necessary to build models of skill formation with multiple stages of childhood, where inputs at different stages are complements and where there is self-productivity of investment.

There are three distinct constraints operating on the family and its children. The first constraint is the inability of a child to choose his or her parents—the fundamental constraint imposed by the accident of birth. The second constraint is the inability of parents to borrow against their children's future income to finance investments in them. The third constraint is the inability of parents to borrow against their own income to finance investments in their children.

This report summarizes findings from the recent literature on child development and presents a model that explains them. A model that is faithful to the evidence must recognize that (1) parental influences are key factors governing child development; (2) early childhood investments must be distinguished from late childhood investments; (3) an equity–efficiency tradeoff exists for late investments, but not for early investments; (4) abilities are created, not solely inherited, and are multiple in variety; (5) the traditional ability–skill dichotomy is misleading. Both skills and abilities are created; and (6) the “nature versus nurture” distinction is obsolete. These insights change how analysts should interpret evidence and design policy about investing in children. Point 1 is emphasized in many reports. Point 2 is ignored in the many models in the social science literature that consider only one period of childhood in building models of investment. Points 3–5 have received scant attention in the literature on child investment. Point 6 is ignored in the large and misleading literature that partitions the variance of child outcomes into additive components due to nature and components due to nurture.