Original Source Date: February 1, 2010
Impact Highlights
| Annual ROI | Time Horizon | Confidence |
|---|---|---|
| 8.5% | 61.0 years | 3 - Medium |
| Activities | Outcomes | Indicators |
|---|---|---|
| Education | Children, Opportunity, Schools | High school graduation, Income, Unemployment, Violent crime, Welfare Spend |
| Geography | Demographics |
|---|---|
| Great Lakes, Michigan, United States | Children, Race - Non-White |
Article Details
The economic case for expanding preschool education for disadvantaged children is largely based on evidence from the High/Scope Perry Preschool Program, an early intervention in the lives of disadvantaged children in the early 1960s. In that program, children were randomly assigned to treatment and control group status and have been systematically followed through age 40. Information on earnings, employment, education, crime and a variety of other outcomes are collected at various ages of the study participants. In a highly cited paper, Rolnick and Grunewald (2003) report a rate of return of 16 percent to the Perry program. Belfield et al. (2006) report a 17 percent rate of return.
Critics of the Perry program point to the small sample size of the evaluation study (123 treatments and controls), the lack of a substantial long-term effect of the program on IQ, and the absence of statistical significance for many estimated treatment effects. Hanushek and Lindseth (2009) question the strength of the evidence on the Perry program, claiming that estimates of its impact are fragile.
The literature does little to assuage these concerns. All of the reported estimates of rates of return are presented without standard errors, leaving readers uncertain as to whether the estimates are statistically significantly different from zero. The paper by Rolnick and Grunewald (2003) reports few details and no sensitivity analyses exploring the consequences of alternative assumptions about costs and benefits of key public programs and the costs of crime. The study by Belfield et al. (2006) also does not report standard errors. It provides more details on how its estimates are obtained, but conducts only a limited sensitivity analysis.
Any computation of the lifetime rate of return to the Perry program must address four major challenges: (a) the randomization protocol was compromised; (b) there are no data on participants past age 40 and it is necessary to extrapolate out-of-sample to obtain earnings profiles past that age to estimate lifetime impacts of the program; (c) some data are missing for participants prior to age 40; and (d) there is difficulty in assigning reliable values to non-market outcomes such as crime. The last point is especially relevant to any analysis of the Perry program because crime reduction is one of its major benefits. Unless these challenges are carefully addressed, the true rate of return remains uncertain as does the economic case for early intervention.
This paper presents rigorous estimates of the rate of return and the benefit-to-cost ratio for the Perry program. Our analysis improves on previous studies in seven ways. (1) We account for compromised randomization in evaluating this program. As noted in Heckman, Moon, Pinto, Savelyev, and Yavitz (2009b), in the Perry study, the randomization actually implemented in this program is somewhat problematic because of reassignment of treatment and control status after random assignment. (2) We develop standard errors for all of our estimates of the rate of return and for the benefit-to-cost ratios accounting for components of the model where standard errors can be reliably determined. (3) For the remaining components of costs and benefits where meaningful standard errors cannot be determined, we examine the sensitivity of estimates of rates of return to plausible ranges of assumptions. (4) We present estimates that adjust for the deadweight costs of taxation. Previous estimates ignore the costs of raising taxes in financing programs. (5) We use a much wider variety of methods to impute within-sample missing earnings than have been used in the previous literature, and examine the sensitivity of our estimates to the application of alternative imputation procedures that draw on standard methods in the literature on panel data.11 (6) We use state-of-the-art methods to extrapolate missing future earnings for both treatment and control group participants. We examine the sensitivity of our estimates to plausible alternative assumptions about out-of-sample earnings. We also report estimates to age 40 that do not require extrapolation. (7) We use local data on costs of education, crime, and welfare participation whenever possible, instead of following earlier studies in using national data to estimate these components of the rate of return.
Separate rates of return are reported for benefits accruing to individuals versus those that accrue to society at large that include the impact of the program on crime, participation in welfare, and the resulting savings in social costs. Our estimate of the overall annual social rate of return to the Perry program is in the range of 7–10 percent. For the benefit of non-economist readers, these estimates, if compounded and reinvested annually over a 65 year life, imply that each dollar invested at age 4 yields a return of 60–300 dollars by age 65. Stated another way, the benefit-cost ratio for the Perry program, accounting for deadweight costs of taxes and assuming a 3% discount rate, ranges from 7 to 12 dollars per person, i.e., each dollar invested returns in present value terms 7 to 12 dollars back to society.
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