The Supply of Quality in Child Care Centers

No 7225, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We use data from a sample of day care centers to estimate the relationships between cost and the quality of the child care service provided, and between revenue and quality. We use a measure of child care quality derived from an instrument designed by developmental psychologists. This measure of quality has been found to be positively associated with child development. Taking the estimated cost-quality and revenue-quality relationships as given, we then estimate the objective functions of the firms and compute the supply function for quality. The results indicate that (1) the estimated cost function is inconsistent with the implications of cost-minimization; (2) for-profit firms operate at a positive level of marginal cost, but non-profit firms operate at zero or negative marginal cost; (3) revenue is positively but weakly associated with quality; and (4) the supply of quality is inelastic, with point estimates of the supply elasticity of .04-.05 for both for-profit and non-profit firms. Implications of the results for child care policy are discussed.

JEL-codes: J13 L2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hea
Date: 1999-07
Note: CH
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Published as "The Supply of Quality in Child Care Centers" in the Review of Economics and Statistics; August 2002, 84(3): 483-496.

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