Nber Working Paper Series the Economics and Psychology of Inequality and Human Development

Recent research on the economics of human development deepens understanding of the origins of inequality and excellence. It draws on and contributes to personality psychology and the psychology of human development. Inequalities in family environments and investments in children are substantial. They causally affect the development of capabilities. Both cognitive and noncognitive capabilities determine success in life but to varying degrees for different outcomes. An empirically determined technology of capability formation reveals that capabilities are self-productive and cross-fertilizing and can be enhanced by investment. Investments in capabilities are relatively more productive at some stages of a child's life cycle than others. Optimal child investment strategies differ depending on target outcomes of interest and on the nature of adversity in a child's early years. For some configurations of early disadvantage and for some desired outcomes, it is efficient to invest relatively more in the later years of childhood than in the early years. Flavio Cunha University of Pennsylvania Department of Economics 160 McNeil Building 3718 Locust Walk Philadelphia PA 19104 [email protected] James J. Heckman Department of Economics The University of Chicago 1126 E. 59th Street Chicago, IL 60637 and NBER [email protected]