RAND Study Provides Primer for Using Economics to Help Guide Early Childhood Policy Initiatives

For Release

May 12, 2008

A growing body of economic research suggests that public investment in early childhood programs may be able to lower public costs for social services by improving children's long-term welfare, according to a new RAND Corporation report.

Such research could promote a reorientation of child and human services toward investment and prevention, moving away from the current system that seeks to “treat” problems that develop later in life, according to the report.

But economic analysis of early childhood programs does not necessarily result in clear direction about what is the single best approach to any problem, according to researchers. Instead, economic research is more likely to highlight a spectrum of promising services and provide guidance about how to choose an optimal level of each program.

The RAND report is intended to provide policymakers with a primer about how economic analysis can help set agendas for early childhood policy and identify the economic benefits of targeting certain groups for help.

“Economic analysis increasingly plays a role in the debate on the merits of early childhood programs, but many people are unprepared to participate in the discussion,” said Rebecca Kilburn, the report's lead author and an economist at RAND, a nonprofit research organization. “The report is intended to provide clarity and structure for making use of such research.”

Interest in using economics to help analyze early childhood policies has grown as business CEOs, Federal Reserve Bank analysts, and Nobel Prize-winning economists have called for increased public spending on early childhood programs.

Two overarching concepts from economic research have become important in discussions of early childhood policy — human capital theory and monetary “payoffs” from investments in early childhood programs.

Human capital theory is an economic model that provides a framework that brings together current thinking about early childhood policy, including the concept that later skills build on skills developed earlier in life. The theory accounts for such concepts as nature and nurture, and the idea that capabilities involve multiple dimensions.

Probably the most widely recognized intersection between economics and early childhood policy is in the analysis of the costs and benefits of early childhood programs such as home visiting and preschool. Such analysis typically compares the costs and benefits of early childhood programs to determine the “rate of return” the public will receive for money spent on such efforts.

A growing body of program evaluations shows that investments in early childhood programs can generate government savings by, for example, reducing the need to provide social services later in life or by improving individuals' earnings, which then generates more tax revenue.

Kilburn and co-author Lynn Karoly write that an increasing body of knowledge has demonstrated how poorly U.S. children fare compared to their counterparts in other developed countries. Research has shown that U.S. babies increasingly are born with low birth weights, elementary-age children are overweight and asthmatic at growing rates, and more than 700,000 children spend time in foster care each year.

In addition, research from the fields of neuroscience, developmental psychology and program evaluation has shown how early experiences help determine how a person's brain develops and that effective early intervention strategies can improve a wide range of outcomes from childhood through early adulthood.

While many studies have found that the cost of early childhood programs can produce long-term benefits that offset their costs, not every early childhood program does so, according to the RAND report.

In addition, researchers caution that evidence suggests that the returns from early childhood programs may decline under certain conditions. While monetary benefits can remain positive for universal programs, the rate of return may be higher when programs are targeted toward the groups likely to benefit from them the most, according to the report.

There also is recognition that the benefits from early childhood interventions may be tied to the quality of those interventions, but higher quality often costs more. Unless funding grows, researchers say, shifting toward higher quality may mean that fewer children can be served.

The study, “The Economics of Early Childhood Policy: What the Dismal Science Has to Say About Investing in Children,” is available at www.rand.org. Support for study was provided by Casey Family Programs.

RAND Labor and Population examines issues involving U.S. labor markets, the demographics of families and children, social welfare policy, the social and economic functioning of the elderly, and economic and social change in developing countries.

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