Early Childhood Education-Education Economics-Lecture Handout, Exercises of Economics of Education

Download Early Childhood Education-Education Economics-Lecture Handout and more Exercises Economics of Education in PDF only on Docsity! Internal Rate of Ret Lecture 4: Early Childhood Education. How Important? urn: Say we have a project with the following cash flows over the project’s lifetime: 204321 ... RRRRC +++++− NPV of the project is equal to where r=the bank rate of interest: 20 20 4 4 3 3 2 21 )1( ... )1()1()1()1( r R r R r R r R r C + ++ + + + + + + + − If the NPV of the cash flows is greater than 0, the project is profitable since it pays out at a rate of return higher than the bank rate of interest, i.e. you are making more than what you need to pay off the bank for a loan of 1C− . Say we assume that r=6% and the NPV=200. If r increases to 6.05%, the NPV decreases to 175. If we increase r further to 6.38% and the NPV=0, we know that the r=6.38% is the internal rate of return, the breakeven interest rate for the project. The bank rate of interest= rreal+rinflation The Marginal Rate of Return to Education: Borjas paper: In this paper, Borjas tried to estimate the percentage change in wages from one more year of education. To make this calculation, we focus on earnings at a specific age rather than a lifetime earnings profile. For example, the wage at age 30: ii lingyrsofschoowage )(00,30 βα += In the 1970s, the return to each additional year of school was estimated at 7%. In the 1990s, 9%. What if we adopted a one year policy intervention for people between the ages of 17 and 25? What about interventions at other ages such as very young children? Are the results very different? Early Childhood Intervention: Theory: 1. Children have more plastic brains. Their brains more easily form and reform neural networks than older people can. In other words, their neurons are more flexible and they have very few old neural networks to disrupt when learning Experiments on animals corroborate the theory: docsity.cmo -Observations of monkeys developing at various ages with and without maternal contact show very different behavioral outcomes. -The damaged eye experiment -Language development: Infants are capable of learning any language or even more than one while older people have a harder time mastering a language when they start learning it before infancy. However, evidence of the difficulty of learning certain language pairs together is not discussed. 2. Learning is cumulative. Cognitive and social skills at age X affect a person’s ability to learn at age X+1. Social skills affect learning because learning is often not done alone. It requires collaboration, interaction, dealing with frustration, and disruptions. Testing the theory: The data available is: 1) Test scores at 22 months 2) Test scores at 42 months 3) Test scores at 5 years 4) Test scores at 10 years 5) Record of educational attainment at age 26 6) Socioeconomic status of the parents (SES) Test scores at 42 months should do a good job of predicting 5 year test scores, 10 year test scores, and educational attainment at age 26. Test scores at 22 months should do a poorer job than test scores at 42 months of predicting because a child’s brain is more plastic at 22 months and has more potential to change. However, a relationship still exists between test scores at 22 months and test scores at older ages. Suppose low test scores at 42 months do a good job of predicting low educational attainment. How do we explain this? Knudsen, et al. argue: Cognitive ability at 42 months is a function of experience and genetic differences. Experience encompasses all parent-child interactions language interaction, whether a parent reads to the child, whether the parent allows the child to ask questions. Experience is found to vary by socioeconomic status. Therefore, low cognitive ability at 42 months can be explained by low quality of parental interaction with a child. It is safe to assume that it will continue to be of low quality in the future. Because socioeconomic status plays a role in child-parent interaction, socioeconomic status plays a role in cognitive ability development. In the data, we need independent variation so we can separate the effects of the parent’s socioeconomic status and test scores on educational attainment at age 26. iiii testscoreSEStlAttainmenEducationa εββα +++= ,42210,26 )()()( docsity.cmo