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

26 Pages Posted: 13 Aug 2001 Last revised: 24 Aug 2010

See all articles by Swati Mukerjee

Swati Mukerjee

Bentley University - Department of Economics

Ann Dryden Witte

Wellesley College - Department of Economics; National Bureau of Economic Research (NBER)

Sheila Hollowell

Wellesley College - Department of Economics

Date Written: April 1990

Abstract

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.

Suggested Citation

Mukerjee, Swati and Dryden Witte, Ann and Hollowell, Sheila, Provision of Child Care: Cost Functions for Profit-Making and Not-for-Profit Day Care Centers (April 1990). NBER Working Paper No. w3345, Available at SSRN: https://ssrn.com/abstract=279409

Swati Mukerjee

Bentley University - Department of Economics ( email )

175 Forest Street
Waltham, MA 02452-4705
United States
781-891-2956 (Phone)
781-891-2896 (Fax)

Ann Dryden Witte (Contact Author)

Wellesley College - Department of Economics ( email )

106 Central Street
Wellesley, MA 02181
United States
781-283-2163 (Phone)
781-283-2177 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Sheila Hollowell

Wellesley College - Department of Economics

106 Central Street
Wellesley, MA 02181
United States

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