Right in the Short Run

I never cease to be amazed at the power of economics in providing a language to discuss social phenomena. Take for instance, Flavio Cunha and James Heckman’s “The Technology of Skill Formation”. Abstract below:

This paper uses a simple economic model of skill formation to organize this and other evidence summarized below and the findings of related literatures in psychology, education and neuroscience. The existing theoretical literature on child development in economics treats childhood as a single period (see, e.g., Becker and Nigel Tomes, 1986; S. Rao Aiyagari et al., 2002; Roland Benabou, 2002). The implicit assumption in this approach is that inputs into the production of skills at different stages of childhood are perfect substitutes. We argue that to account for a large body of evidence, it is important to build a model of skill formation with multiple stages of childhood, where inputs at different stages are complements and where there is self-productivity of investment. In addition, in order to rationalize the evidence, it is important to recognize three distinct credit constraints operating on the family and its children. (i) The inability of a child to choose its parents. This is the fundamental constraint imposed by the accident of birth. (ii) The inability of parents to borrow against their children’s future income to finance investments in them. (iii) The inability of parents to borrow against their own income to finance investments in their children. This paper summarizes findings from the recent literature on child development and presents a model that explains them.

Thoughts?