The Optimal Size of German Child Care Centers and the Impact of Regulation: Estimating the Cost Function of a Regulated Multi-Product Firm
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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Volume (Year): 232 (2012)
Issue (Month): 5 (October)
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