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

  • Swati Mukerjee
  • Ann Dryden Witte
  • Sheila Hollowell
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    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.

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    File URL: http://www.nber.org/papers/w3345.pdf
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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3345.

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    Date of creation: Apr 1990
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    Publication status: published as "Output Quality and the Nature of Production of Day Care for Children." Journal of Productivity Analysis, vol. 4, no. 2 June 1993, p. 145-163
    Handle: RePEc:nbr:nberwo:3345
    Note: LS
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    1. 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 363-84, October.
    2. 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.
    3. 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.
    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.
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