Thursday, August 09, 2007

Another example of declining marginal benefits 

An article in today's WSJ discusses the use of preschool as a poverty-reduction device. Most of the work on this is positive, coming from both Art Rolnick at the Minneapolis Fed and Nobelist James Heckman from the University of Chicago. The author of that article posts a blog addendum at Real Time Economics noting that Heckman is not a supporter of universal pre-school:
�You go where the marginal returns are the highest and they�re highest with disadvantaged children,� he says. He fears that all the economic data � including his own � has produced a �rush to judgment� that has convinced some camps to pre-school for everyone will produce the greatest return.

�It worries me a lot,� he says. �Science doesn�t support universality � we have to approach it more cautiously.�
From his article with Dimitriy Masterov,
The estimated rate of return to the Perry preschool program is about 16%. This includes benefits from reduced remediation and reduced crime, as well as the increased earnings of the participant. All of the children targeted for intervention are of low ability. While much work remains to be done to bolster the case for wide-scale application of these programs to disadvantaged families, the current evidence is powerfully suggestive, if not yet definitive, that large-scale programs will be effective. None of this evidence supports universal preschool
What is the proper allocation of scarce resources towards preschool? How do you decide it? Heckman and Masterov show that the return on these programs go more to society than to the individual, indicating a large external benefit. But it must be compared to a cost, and that cost is the opportunity cost of those funds in alternative uses. Yes, including bridges. You can offer enrichment to only so many.

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