Understanding the Role of Time-Varying Unobserved Ability Heterogeneity in Education Production
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.
We would like to thank Richard Murnane, two anonymous reviewers and seminar participants at Queen's University, Simon Fraser University, 2008 CSWEP/CEMENT workshop, 2008 CEA Annual meetings and the AEA annual meetings session on Education for the Disadvantaged for helpful comments and suggestions. We are grateful to Alan Krueger for generously providing a subset of the data used in the study. Lehrer wishes to thank SSHRC for research support. We are responsible for all errors. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
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