Provision of Child Care: Cost Functions for Profit-Making and Not-for-Profit Day Care Centers

Swati Mukerjee, Ann Dryden Witte, Sheila Hollowell

NBER Working Paper No. 3345
Issued in April 1990
NBER Program(s):   LS

This paper estimates cost functions for day care centers in Massachusetts. The production technology assumed is the generalized homothetic Cobb-Douglas production function. The cost function dual to this production function is estimated separately for profit-making (P1Os) and not-for-profit (NPOs) organizations. The results are discussed in the context of current NPO literature. NPOs are found to be operating at higher average coats than PMOs for most output levels as predicted by the literature. However, the provision of more staff per child hour, our measure of quality, increases coats by similar amounts in PMOs and NPOs. Further, present forms of subsidies do not help either PMOs or NPOs, and in fact, promote 'shirking' in NPOs. PMOs are not optimizing with reference to the amount of education and experience in their personnel. The results suggest that experienced labor may be working for less than its marginal product in the day care industry.

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Document Object Identifier (DOI): 10.3386/w3345

Published: "Output Quality and the Nature of Production of Day Care for Children." Journal of Productivity Analysis, vol. 4, no. 2 June 1993, p. 145-163

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