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

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Author Info

  • Peter Boenisch

    ()
    (Uni Halle-Wittenberg)

  • Sven Tagge

    ()
    (Uni Halle-Wittenberg)

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.

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Bibliographic Info

Article provided by Justus-Liebig University Giessen, Department of Statistics and Economics in its journal Journal of Economics and Statistics.

Volume (Year): 232 (2012)
Issue (Month): 5 (September)
Pages: 545-566

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Handle: RePEc:jns:jbstat:v:232:y:2012:i:5:p:545-566

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Related research

Keywords: Regulation; child care; multi-product cost function; economies of scope; Germany;

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References

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  1. Murray, John D & White, Robert W, 1983. " Economies of Scale and Economies of Scope in Multiproduct Financial Institutions: A Study of British Columbia Credit Unions," Journal of Finance, American Finance Association, vol. 38(3), pages 887-902, June.
  2. Ribar, D.C., 1993. "A Structural Model of Child Care and the Labor Supply of Married Women," Papers 5-93-1, Pennsylvania State - Department of Economics.
  3. Musgrave, Alan, 1981. "'Unreal Assumptions' in Economic Theory: The F-Twist Untwisted," Kyklos, Wiley Blackwell, vol. 34(3), pages 377-87.
  4. Quinn Weninger, 2003. "Estimating multiproduct costs when some outputs are not produced," Empirical Economics, Springer, vol. 28(4), pages 753-765, November.
  5. Blau, David M., 2007. "Unintended consequences of child care regulations," Labour Economics, Elsevier, vol. 14(3), pages 513-538, June.
  6. David M. Blau, 1997. "The Production of Quality in Child Care Centers," Journal of Human Resources, University of Wisconsin Press, vol. 32(2), pages 354-387.
  7. Naci Mocan, 2007. "Can consumers detect lemons? An empirical analysis of information asymmetry in the market for child care," Journal of Population Economics, Springer, vol. 20(4), pages 743-780, October.
  8. Jean Kimmel, 1998. "Child Care Costs As A Barrier To Employment For Single And Married Mothers," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 287-299, May.
  9. H. Naci Mocan, 1995. "Quality Adjusted Cost Functions for Child Care Centers," NBER Working Papers 5040, National Bureau of Economic Research, Inc.
  10. George E. Battese, 1997. "A Note On The Estimation Of Cobb-Douglas Production Functions When Some Explanatory Variables Have Zero Values," Journal of Agricultural Economics, Wiley Blackwell, vol. 48(1-3), pages 250-252.
  11. Tarja K. Viitanen, 2005. "Cost of Childcare and Female Employment in the UK," LABOUR, CEIS, vol. 19(s1), pages 149-170, December.
  12. Irene Powell & James Cosgrove, 1992. "Quality and Cost in Early Childhood Education," Journal of Human Resources, University of Wisconsin Press, vol. 27(3), pages 472-484.
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