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

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  • Swati Mukerjee
  • Ann Dryden Witte
  • Sheila Hollowell

Abstract

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.

Suggested Citation

  • Swati Mukerjee & Ann Dryden Witte & Sheila Hollowell, 1990. "Provision of Child Care: Cost Functions for Profit-Making and Not-for-Profit Day Care Centers," NBER Working Papers 3345, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:3345
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    References listed on IDEAS

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    1. Blair, Roger D & Ginsburg, Paul B & Vogel, Ronald J, 1975. "Blue Cross-Blue Shield Administration Costs: A Study of Non-profit Health Insurers," Economic Inquiry, Western Economic Association International, vol. 13(2), pages 237-251, June.
    2. Henriques, I. & Vaillancourt, F., 1986. "The Demand for Child Care Services in Canada," Cahiers de recherche 8606, Universite de Montreal, Departement de sciences economiques.
    3. Clarkson, Kenneth W, 1972. "Some Implications of Property Rights in Hospital Management," Journal of Law and Economics, University of Chicago Press, vol. 15(2), pages 363-384, October.
    4. M. Denny, 1974. "The Relationship Between Functional Forms for the Production System," Canadian Journal of Economics, Canadian Economics Association, vol. 7(1), pages 21-31, February.
    5. Robins, Philip K & Spiegelman, Robert G, 1978. "An Econometric Model of the Demand for Child Care," Economic Inquiry, Western Economic Association International, vol. 16(1), pages 83-94, January.
    6. Diewert, W E, 1971. "An Application of the Shephard Duality Theorem: A Generalized Leontief Production Function," Journal of Political Economy, University of Chicago Press, vol. 79(3), pages 481-507, May-June.
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    Cited by:

    1. Joëlle Noailly & Sabine Visser & Paul Grout, 2007. "The impact of market forces on the provision of childcare: Insights from the 2005 Childcare Act in the Netherlands," CPB Memorandum 176, CPB Netherlands Bureau for Economic Policy Analysis.
    2. Swati Mukerjee & Ann Dryden Witte, 1992. "Measurement of Output and Quality Adjustment in the Day-care Industry," NBER Chapters, in: Output Measurement in the Service Sectors, pages 343-369, National Bureau of Economic Research, Inc.
    3. Swati Mukerjee & Ann Dryden Witte, 1991. "Measurement of Output and Quality Adjustment When Hedonics Cannot Be Used: An Illustration for the Day Care Industry," NBER Working Papers 3771, National Bureau of Economic Research, Inc.

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