The Role of Schools in the Production of Achievement
What explains differences in pre-market factors? Three types of inputs are believed to determine the skills agents take to the labor market: ability, family inputs and school inputs. Therefore to answer the previous question it is crucial to understand first the importance of each of those inputs. The literature on the production of achievement has not been able to provide an estimation that can take the three factors into account simultaneously at the student level. This paper intends to fill this gap by providing an estimation of the production function of achievement where both types of investments (families and schools) are considered in a framework where the inputs are allowed to be correlated with the unobserved term, ability to learn. I do that by applying Olley and Pakes’ (1996) algorithm which accommodates for endogeneity problems in the choice of inputs for the production of achievement and by using parents’ saving for their child’s postsecondary education to control for the unobserved component (i.e. ability to learn) in the production of skills. The estimates for the role of family inputs are in line to previous findings. Additionally, the estimates of school inputs show that they are also important for the formation of students’ skills even after controlling for ability to learn.