Perry Preschool Program

The upfront costs of Perry Pre-School were $17,759 in 2006 USD. Long-run reductions in transfer payments and increases in tax revenue offset roughly 92% of these upfront costs. Heckman et al. (2010) estimate significant earnings increases from ages 19-40, and an increase in earnings of 26% at age 40. Hendren and Sprung-Keyser (2020) combine their estimated earnings effects with a forecast to age 65 this into a lifetime earnings impact of $70,535. Using a state and federal combined tax rate of 12.9%, this implies an increase in tax revenue of $9,607. Heckman et al. (2010) also estimate that the policy led to a reduction of payments on welfare programs of $3,941. In addition, there are also induced costs of college attendance and vocational training whose incidence falls on the government. Heckman et al. (2010)’s estimates actually imply a fall in such costs, saving the government $2,805. This suggests $16,353 is repaid to the government, implying a net cost of $1,406 (95% CI of [-9,235, 12,126]). Roughly 92% of the upfront spending is repaid to the government. The upper end of the confidence interval for the net cost ($12,126) suggests 32% is recouped.

To harmonize across policies, these baseline cost measures exclude other cost components that are included in the analysis of Heckman et al. (2010). In particular, Hendren and Sprung-Keyser (2020) do not include their estimated $4,287 marginal cost increases from K-12 education (costs which arise because of increased special education or GED attainment), nor do they include any costs of crime. Heckman et al. (2010) find reductions in crime, which they estimate reduced the cost of policing by $19,894 and correctional costs by $8,281. On net, including these additional cost reductions implies a net cost of $-22,483 (95% CI of [-48,668, 3,899]). Incorporating the cost savings from crime yields a point estimate that suggests the policy pays for itself.

The WTP of $61,321 implies an MVPF of 61,321 / 1,406 = 43.6. Hendren and Sprung-Keyser (2020) estimate a 95% CI of [1.83, \infty]. This suggests one cannot rule out MVPFs of around 2 or infinity.

Hendren and Sprung-Keyser (2020) also consider alternative specifications. Including the additional government cost reductions from the criminal justice system generates an MVPF of \infty (95% CI of [5.42, \infty]). Further including WTP externalities from reduced crime victimization further increases the MVPF to \infty with a 95% CI of [20.65, \infty].