Csae Wps/2004-25

Most studies fail to find an impact of school inputs on outcomes such as test scores. We argue that this might be a consequence of ignoring the possibility that households respond optimally to changes in school inputs and thus obscure the real e ect of such provision on cognitive achievement. To incorporate the forward-looking behavior of households, we present a household optimization model relating household resources and cognitive achievement to school inputs. In this framework if household and school inputs are technical substitutes in the production function for cognitive achievement, the impact of unanticipated inputs is larger than that of anticipated inputs. We test the predictions of the model for non-salary cash grants to schools using a unique data set from Zambia. We find that household educational expenditures and school cash grants are substitutes with a coe cient of elasticity between -0.35 and -0.52. Consistent with the optimization model, anticipated funds have no impact on cognitive achievement, but unanticipated funds lead to significant improvements in learning. We are thus able both to order the e ects of di erent kinds of spending and capture their impact on cognitive achievement. Corresponding Author: Jishnu Das ([email protected]). We thank Hanan Jacoby and workshop participants at the World Bank and NEUDC (Yale) for comments. Funding for the survey was provided by the Department for International Development (UK).The findings, interpretations, and conclusions expressed in this paper are those of the authors and do not necessarily represent the views of the World Bank, its Executive Directors, or the governments they represent. Working papers describe research in progress by the authors and are published to elicit comments and to further debate. 1 JEL-code: I28, 016, H31 CSAE WPS/2004-25