Evaluating Public Programs with Close Substitutes: The Case of Head Start

Source: Patrick Kline, Christopher Walters, National Bureau of Economic Research (NBER), NBER Working Paper No. w21658, October 2015
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From the abstract:
This paper empirically evaluates the cost-effectiveness of Head Start, the largest early-childhood education program in the United States. Using data from the Head Start Impact Study (HSIS), we show that Head Start draws roughly a third of its participants from competing preschool programs that receive public funds. This both attenuates measured experimental impacts on test scores and reduces the program’s net budgetary costs. A calibration exercise indicates that accounting for the public savings associated with reduced enrollment in other subsidized preschools substantially increases estimates of Head Start’s rate of return, defined as the after-tax lifetime earnings generated by an extra dollar of public spending. Control function estimation of a semi-parametric selection model reveals substantial heterogeneity in Head Start’s test score impacts with respect to counterfactual care alternatives as well as observed and unobserved child characteristics. Head Start is about as effective at raising test scores as competing preschools and its impacts are greater on children from families less likely to participate in the program. Expanding Head Start to new populations is therefore likely to boost the program’s rate of return, provided that the proposed technology for increasing enrollment is not too costly.