* Joint with the Department of Economics, Macro/International Macro Group
Paper to be discussed is co-authored with Flavio Cunha and Pamela Jervis. Abstract: We shed light on the importance of maternal subjective beliefs in explaining the heterogeneity in maternal choices of investments in the development of their children. Subjective beliefs about the production function of skills in early childhood development is crucial since parents may have biased beliefs about the returns to investments, which is crucial to pin down in designing policies aimed at remediating poor investments. We first show how to convert the answers to a specific set of questions into estimates of expected rates of returns on specific investment and, under certain assumptions, into subjective beliefs of the parameters of a production function. We then relate these estimates to actual maternal behaviour. Finally we formulate and estimate a model in which mothers have subjective beliefs about the technology governing the formulation of skills in early childhood development, and show how to estimate from investment behaviour, reference parameters. We apply these ideas to a detailed and unique data from Colombia. We find that parents think that the productivity of investment is much higher for low initial conditions than higher initial conditions.