Estimating the Technology of Cognitive and Noncognitive Skill Formation

Estimating the Technology of Cognitive and Noncognitive Skill Formation

Flavio Cunha, James Heckman, and Susanne Schennach

NBER Working Paper No. 15664

February 2010

JEL No. C31,J13

ABSTRACT

This paper formulates and estimates multistage production functions for children's cognitive and noncognitive
skills. Skills are determined by parental environments and investments at different stages of childhood.
We estimate the elasticity of substitution between investments in one period and stocks of skills in
that period to assess the benefits of early investment in children compared to later remediation. We
establish nonparametric identification of a general class of production technologies based on nonlinear
factor models with endogenous inputs. A by-product of our approach is a framework for evaluating
childhood and schooling interventions that does not rely on arbitrarily scaled test scores as outputs
and recognizes the differential effects of the same bundle of skills in different tasks. Using the estimated
technology, we determine optimal targeting of interventions to children with different parental and
personal birth endowments. Substitutability decreases in later stages of the life cycle in the production
of cognitive skills. It is roughly constant across stages of the life cycle in the production of noncognitive
skills. This finding has important implications for the design of policies that target the disadvantaged.
For most configurations of disadvantage, our estimates imply that it is optimal to invest relatively
more in the early stages of childhood than in later stages.

Flavio Cunha

Department of Economics

University of Pennsylvania

160 McNeil Building

3718 Locust Walk

Philadelphia, PA 19104-6297
and NBER

[email protected]

James Heckman

Department of Economics

The University of Chicago
1126 E. 59th Street

Chicago, IL 60637

and University College Dublin and IZA
and also NBER

[email protected]

An online appendix is available at:

http://www.nber.org/data-appendix/w15664

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