The Abecedarian Project was an intensive early childhood intervention conducted in the 1970s. For 57 treatment children, it provided child care for 6-8 hours a day, 5 days a week, from infancy through age 5. This child care revolved around game-based education, aimed particularly at developing language skills, but also other social, emotional and cognitive skills. The children were selected at random for the program, so that the children receiving the intervention could be compared to a control group of 54 children who did not receive the intervention.
Hendren and Sprung-Keyser (2020) form MVPF estimates for the Carolina Abecedarian Project using the cost-benefit analysis of Barnett and Masse (2007) combined with later follow-up analysis in Campbell et al. (2012) that provides direct measurement of the impact of the policy on children’s earnings. As Hendren and Sprung-Keyser (2020) note in their analyses, the treatment group experiences large gains relative to the control group, although the sample size for the intervention is fairly small, which limits the precision of the estimate of the program’s MVPF.
MVPF = 11.9
The initial cost of the program was $63,467 per child. The policy led to increases in parental labor earnings of $68,728, which generated an $13,746 in tax revenue. That calculation uses a tax and transfer rate of 20%. The impact of parental earnings on net costs would be greater if a 35% tax and transfer rate was used, as in Barnett and Masse (2007). In addition, the program partially crowded out previous attendance at publicly-funded preschools, which Barnett and Masse (2007) suggest reduced government costs by $3,165. In adulthood, Barnett and Masse (2007) estimate that the program increased college attendance by 23 percentage points; Hendren and Sprung-Keyser (2021) estimate this cost the government an estimated $7,428. Campbell et al. (2012) also estimate that the program increased earnings at age 30 by $12,730, although this increase is not statistically distinct from zero. Hendren and Sprung-Keyser (2020) project those earnings gains across the lifecycle to produce a lifetime earnings impact of $191,990, when earnings are discounted at 3%. Applying a 20% tax and transfer rate produces a $38,398 increase in government revenue, although the estimate is not statistically different from zero. The estimate of these cost savings would be higher if a higher tax and transfer rate is used.
On net, Hendren and Sprung-Keyser (2020) estimate the total cost of the program to be $13,990, roughly 22% of its upfront cost. This estimate has a wide confidence interval that ranges from a net cost of $73,044 to a net savings (negative net cost) of $48,086.
Hendren and Sprung-Keyser (2020) measure WTP starting with the $153,592 after tax benefits to participants. (This estimate is based on the $191,990 in lifetime earnings gains, net of the $38,398 in increased government revenue.) To this they add the $15,052 in additional savings, and subtract the $700 increase in college costs and $1,596 in AFDC payments. That results in a total WTP of $166,349. As with costs, this has a wide confidence interval that ranges from -$15,115 to $357,097.
The WTP of $166,349 and Net Cost of $13,990 implies an MVPF of 11.89. The confidence interval on this estimate is quite wide, ranging from -0.18 (so that the program provides no net benefit per dollar spent) to infinity (so that the program pays for itself).
Barnett, W.S. and Leonard N. Masse (2007). “Comparative Benefit Cost Analysis of the Abecedarian Program and Its Policy Implications,” Economics of Education Review, 26(1) 113-125. DOI: https://doi.org/10.1016/j.econedurev.2005.10.007
Campbell, Frances A., Elizabeth P. Pungello, Margaret Burchinal, Kirsten Kainz, Yi Pan, Barbara H. Wasik, Oscar A. Barbarin, Joseph J. Sparling and Craig T. Ramey (2012). “Adult Outcomes as a Function of an Early Childhood Educational Program: An Abecedarian Project Follow-up.” Developmental Psychology, 48(4), 1033-1043. https://doi.org/10.1037/a0026644
Hendren, Nathaniel and Ben Sprung-Keyser (2020). “A Unified Welfare Analysis of Government Policies.” The Quarterly Journal of Economics, 135(3): 1209–1318. DOI: https://doi.org/10.1093/qje/qjaa006