The Production of Child Human Capital: Endowments, Investments and Fertility

We study how endowments, investments and fertility interact to produce human capital in childhood. First we explore the human capital production function. Exploiting an exogenous source of investment, the launch of Head Start in 1966, to identify the impact of investments (preschool) on child human capital (IQ), we find strong evidence of complementarity between investments and early human capital as evidenced by greater gains from preschool on the IQ of those with the highest initial human capital. Second, because this complementarity generates incentives for parents to invest in children with higher initial levels of human capital, we explore how investments respond to child endowments and find that they are reinforcing. Third, the degree of reinforcement increases with family size. Thus, in addition to the tradeoff in quantity and average quality, an increase in quantity also leads to greater variation in quality, due to both greater variation in endowments (from higher fertility) and greater reinforcing investments. Finally, we show that our findings are replicated by a quantity-quality tradeoff model in which children are heterogeneous with respect to their endowment and parental preferences feature weak complementarity between quality and quantity as well as moderate aversion to inequality in the human capital of children.