Rates of return to human capital investment in disadvantaged children
The declining figure plots the payout per year per dollar invested in human capital programs at different stages of the life cycle for the marginal participant at current levels of spending. The opportunity cost of funds (r) is the payout per year if the dollar is invested in financial assets (e.g., passbook savings) instead. An optimal investment program from the point of view of economic efficiency equates returns across all stages of the life cycle to the opportunity cost. The figure shows that, at current levels of funding, we overinvest in most schooling and post-schooling programs and underinvest in preschool programs for disadvantaged persons. Adapted from (3) with permission from MIT Press.
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