PRICE AND QUALITY IN THE UK CHILDCAREMARKET

Childcare subsidies are typically advocated as a means to making paid employmentprofitable for mothers, but also have important ramifications for the use and quality ofpaid childcare. Even if one is concerned primarily with the quantity aspect, the qualitydimension cannot be ignored. This paper provides an exposition of the potentialbiases in estimates of price elasticities with respect to quantity that do not allow forquality variation or for the possibility of non-linear pricing structures. Using anapproach developed in the demand estimation literature, a price measure addressingthese issues is derived and the importance of using this measure is tested using Britishdata. Price is found to have a negative impact on the use of formal paid care, the hourspurchased and the quality chosen...