The prevalence of poverty in advanced economies represents a challenge,
both to economic theory and to society. We know that poverty
is perpetuated by low levels of educational investment amongst disadvantaged
children, but we have no credible theoretical explanation for
the observed degree of that apparent underinvestment, and we have not
yet developed sufficient policy tools to break the intergenerational cycle
of deprivation. In response, this thesis undertakes theoretical and empirical
analyses of the pathways that perpetuate poverty. I demonstrate
that divergently low educational investment could arise as an equilibrium
response to a grades-focussed educational system; I develop the
existing state-of-the-art technique in econometric estimation of the educational
production function; and I apply that technique to find strong
empirical support for my theoretical model. In addition my results show
that the average child’s propensity to think analytically has a substantial
influence over their developmental pathway, which suggests that
models of educational investment should adopt a generalisation of Expected
Utility Theory that allows agents to maximise one of two possible
objective functions.