Abstract
Children from disadvantaged families perform very poorly in school and labour market because they acquire low level of social, motivational and cognitive skills during their early childhood development. Using the NLSY data set, this paper formulates and then estimates the production processes for cognitive skills and non-cognitive skills such as social and motivational skills during early childhood development and the long-term effects of these skills on learning and lifetime earnings of an individual. Using these estimated relationships, the paper provides a calibrated intergenerational altruistic model of parental investment in children’s preschool. This dynamic model is then used to estimate the effects of publicly provided preschool to the children of poor socioeconomic status (SES) as a social contract on lifetime earnings distribution, intergenerational college and social mobility, and to estimate the tax burden of such a social contract.