Cost Functions, Efficiency, and Quality in Day Care Centers

Using a new data set, this paper finds that there is no quality difference between nonprofit and for-profit day care centers, and with the exception of one segment of the nonprofit sector, there is no efficiency difference. The cost of increasing the quality from mediocre to good is between 12 and 16 cents per child-hour. Centers have inelastic demand for workers. Child care workers with 13 to 15 years of education and workers with more than 16 years of education are substitutes; workers with more than 16 years of education are complements to workers with 12 or fewer years of education. There are economies of scale and scope in production.