The ineffectiveness of school inputs: a product of misspecification?

Two-thirds of education production function studies relating learning to sc hool and parental inputs also include parental income. This confounds deman d and production functions, since in demand functions income determines the school inputs used in the production function. In a comprehensive review o f the literature, we show that with this misspecification significantly pos itive school input coefficients are 39% less common. Then, with Project TAL ENT student-level data from 1960 and pooled state data for 1987-1992, we ex amine the impact of including income with no other change in specification. This causes most school inputs to become less significant. Hausman tests s uggest that in OLS regressions there is a correlation between the school in put measures and the error term, perhaps due to the omission of a good meas ure of parental time with the student. This appears to bias the school inpu t coefficients toward zero, but can be corrected with IV methods. [JEL 121, H52, H42] (C) 1999 Elsevier Science Ltd. All rights reserved.