| Intervening early in the lives of `at risk' children, and thus reducing the burden they may place on society as adults, is becoming an increasingly popular argument in the economics literature. Public investment in disadvantaged young children is argued to be one of the few options without the equity-efficiency tradeoffs that afflict most public policies. However, this raises an important question: is this type of human capital investment always effective and economically efficient? This study addresses this issue by re-evaluating two popular flagship studies in early childhood research : Perry Preschool and Carolina Abecedarian programs.;To evaluate these two social experiments, several analytical challenges have to be solved. First, both programs are randomized controlled trials, but the sample size is small and the randomization is far from being ideal. These issues are addressed by permutation-based testing procedures in this study. Secondly, translating treatment effects to monetary value is not trivial. There are numerous empirical issues to obtain robust estimates of internal rates of returns (IRRs) and benefit-to-cost ratios (B/C ratios) including monetizing non-monetary outcomes, accounting for deadweight loss of taxation, and calculating standard errors of IRRs and B/C ratios. This study addresses these issues via the state-of-the-art techniques.;This study finds that the return rate to the Perry Preschool Program generally fall between 7--10 percent, which is higher than the long-term stock market return rate in the U.S. (5.8 percent). This indicates that programs mimicking the Perry Preschool are likely to be economically efficient in the sense that this type of human capital investment likely promises bigger benefits to the society in the long run than investment on physical capital. However, an analogous analysis of Carolina Abecedarian Project exhibits much lower return rates, hovering around 4 percent, which is lower than the historical return rate on equity. This indicates that some early childhood intervention programs may fail to achieve economic efficiency although they could be effective. This finding gives an important policy implication: not all early childhood intervention program are economically efficient. A program should be not only effective but also cheap to promise long-term benefits. |
