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The Optimal Size of German Child Care Centers and the Impact of Regulation: Estimating the Cost Function of a Regulated Multi-Product Firm

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  • Bönisch Peter

    (Martin-Luther-University Halle-Wittenberg, School of Economics and Business, Große Steinstraße 73, 06108 Halle, Germany)

  • Tagge Sven

    (Martin-Luther-UniversityHalle-Wittenberg, School of Economics and Business, Große Steinstraße 73, 06108 Halle, Germany)

Abstract

Using a unique data set on German child care centers, we estimate a long-run multi-product cost function for child care provision in Germanywhile taking into account legal minimal labor input restrictions. For a representative child care center we find economies of scale, a U-shaped average cost curve, and indications of diseconomies of scope. The legally stipulated minimum child-to-staff ratio is manifested in a positive Lagrange multiplier, showing that modeling legal restrictions is necessary to avoid misspecification error. Our study provides a useful tool for policymakers in estimating the effects of future demographic change on child care costs.

Suggested Citation

  • Bönisch Peter & Tagge Sven, 2012. "The Optimal Size of German Child Care Centers and the Impact of Regulation: Estimating the Cost Function of a Regulated Multi-Product Firm," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 232(5), pages 545-566, October.
    • Handle: RePEc:jns:jbstat:v:232:y:2012:i:5:p:545-566
    DOI: 10.1515/jbnst-2012-0504
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    References listed on IDEAS

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