NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Understanding the Role of Time-Varying Unobserved Ability Heterogeneity in Education Production

Weili Ding, Steven F. Lehrer

NBER Working Paper No. 19937
Issued in February 2014
NBER Program(s):Economics of Education

Unobserved ability heterogeneity has long been postulated to play a key role in human capital development. Traditional strategies to estimate education production functions do not allow for varying role or development of unobserved ability as a child ages. Such restrictions are highly inconsistent with a growing body of scientific evidence; moreover, in order to obtain unbiased parameter estimates of observed educational inputs, researchers must properly account for unobserved skills that may be correlated with other inputs to the production process. To illustrate our empirical strategy we use experimental data from Tennessee's Student/Teacher Achievement Ratio experiment, known as Project STAR. We find that unobserved ability is endogenously developed over time and its impact on cognitive achievement varies significantly between grades in all subject areas. Moreover, we present evidence that accounting for time-varying unobserved ability across individuals and a more general depreciating pattern of observed inputs are both important when estimating education production functions.

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Document Object Identifier (DOI): 10.3386/w19937

Published: Ding, Weili & Lehrer, Steven F., 2014. "Understanding the role of time-varying unobserved ability heterogeneity in education production," Economics of Education Review, Elsevier, vol. 40(C), pages 55-75. citation courtesy of

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