The Economic Rationale for Investing in Children: A Focus on Child Care. Equity


An economic case for government intervention in child health programs can be made on the grounds of equity. People who start out with very unequal endowments are likely to end up with very unequal allocations, even if the outcome is efficient (Inman 1986). A government that is concerned with equity can compensate for differences in final outcomes, attempt to equalize initial endowments, or both. In principal, spending on programs of each type can be increased until the marginal benefit associated with an additional dollar of spending is equalized.

However, equalizing early endowments through provision of appropriate preventive care may be a superior approach to the problem of unequal allocations, both because it avoids many of the moral hazard problems that arise when society attempts to compensate those with poor outcomes, and because prevention may be a more cost-effective way of promoting equity than compensating for unequal outcomes ex poste. In many cases, an ounce of prevention is worth much more than a pound of cure. For example, lead abatement and the treatment of lead poisoning prevents permanent brain damage, and abstention from alcohol during pregnancy prevents retardation caused by fetal alcohol syndrome (the leading preventable cause of mental retardation in developed countries).

Similarly, Furstenberg, Brooks-Gunn, and Morgan (1987) present evidence that it is important for children to get "off on the right foot" in school, and that children who lived in disadvantaged families when they started school had worse average performance than other children even if their parents' situation improved subsequently. The difficulty of overcoming poor endowments later in life, for example through job training programs for high school dropouts, makes early intervention through quality child care attractive as well(1). The fact that so much policy emphasis has been placed on providing health care to uninsured children probably reflects concerns about equity, much more than it reflects concerns about the existence of the possible "failures" in the market for health care which are discussed in the next section.