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This paper formulates a structural dynamic programming model of preschool investment choices of altruistic parents and then empirically estimates the structural parameters of the model using the NLSY79 data. The paper finds that preschool investment significantly boosts cognitive and non-cognitive skills, which enhance earnings and school outcomes. It also finds that a standard Mincer earnings function, by omitting measures of non-cognitive skills on the right-hand side, overestimates the rate of return to schooling. From the estimated equilibrium Markov process, the paper studies the nature of within generation earnings distribution, intergenerational earnings mobility, and schooling mobility. The paper finds that a tax-financed free preschool program for the children of poor socioeconomic status generates positive net gains to the society in terms of average earnings, higher intergenerational earnings mobility, and schooling mobility.

Using the PSID Child Development Supplement (CDS) and the corresponding PSID main data sets, we examine whether home ownership has positive effects on the academic achievement of children after correcting for selectivity bias and controlling for home environment, neighborhood quality, residential stability, and income. While we find no independent effects of home ownership, there are positive significant effects of home environment, neighborhood quality, and residential stability on the reading and math performance of children between the ages of three and twelve. The main policy implication of our study is that improvement of a child's home environment, residential stability, and the quality of the neighborhood is more important than ownership of a home to achieve better child outcomes. Subsidized home ownership can lead to better child outcomes to the extent that it places a child in a better home environment, in a more stable residence, and in a better neighborhood.