ECONOMIC REPORT OF THE PRESIDENT

Card and Rothstein 2007; Dickerson 2007; Subramanian et al. 2005;
Acevedo-Garcia and Lochner 2003).
The Role of Public Investment in Early Childhood
Early childhood investments can result in significant benefits for
children, parents, and society. However, children from disadvantaged
households often do not receive the investment they need to ensure their
healthy development and success in school because optimal investments are
resource-intensive and must happen early, while the benefits are realized
over a long time horizon. Indeed, the challenges inherent in investing in
children may be experienced by all parents; however, these obstacles can be
especially daunting for parents with limited resources.
First, the need to invest early presents a challenge. Because many of
the benefits—which include future earnings, health, and life satisfaction—
are delayed and accrue to children in adulthood, children rely on parents
and others to recognize these future returns on investment and to invest on
their behalf.
Second, the gains these investments produce require significant upfront
costs. This can be difficult for families to afford on their own, particularly
for low-income households, since they lack sufficient time and financial
resources or access to affordable credit to make these early investments.
Third, among factors that determine the quality of investment in
young children, neighborhood quality and other environmental factors can
be as important as family income. Many aspects of a child’s environment can
be difficult for parents to change on their own. Children from disadvantaged
households face additional risks as a result of their environment, and public
investments can improve these environmental inputs and supplement existing
investments made by the family and community.
Finally, because many of the benefits accrue to society over a long time
period, individuals lack the incentive to invest at the level that would achieve
the highest social return. Indeed, the research surveyed later in this chapter
suggests that the societal benefits are potentially large and wide ranging, and
that these societal benefits often exceed the benefits received by the children
themselves. These benefits include: reductions in crime; lower expenditures
on health care, remedial education, and incarceration; and increased tax
revenue and lowered public assistance expenditure due to higher earnings.
In light of these challenges, well-designed public investments can play
a crucial role in closing income- and opportunity-related gaps that affect
short- and long-run outcomes of children (see Box 4-2 for a discussion of the
design of public investment). Public policy can also be key to ensuring that
172 | Chapter 4