INTRODUCTION

It is well documented that people have diverse abilities, that these abilities account for a substantial portion of the variation across people in socioeconomic success, and that persistent and substantial ability gaps across children from various socioeconomic groups emerge before they start school. The family plays a powerful role in shaping these abilities through genetics and parental investments and through the choice of child environments. A variety of intervention studies indicate that ability gaps in children from different socioeconomic groups can be reduced if remediation is attempted at early ages. The remediation efforts that appear to be most effective are those that supplement family environments for disadvantaged children. Cunha, Heckman, Lochner, and Masterov (CHLM; 2006) present a comprehensive survey and discussion of this literature.

This chapter uses a simple economic model of skill formation to organize this and other evidence summarized here and the findings of related literatures in psychology, education, and neuroscience. The existing economic models of child development treat childhood as a single period (see, e.g., Aiyagari, Greenwood, & Seshadri, 2002; Becker & Tomes, 1986; Benabou, 2002). The implicit assumption in this approach is that inputs into the production of skills at different stages of childhood are perfect substitutes. Instead, we argue that to account for a large body of evidence, it is important to build a model of skill formation with multiple stages of childhood, where inputs at different stages are complements and where there is self-productivity of investment.