Working Paper: NBER ID: w3345
Authors: Swati Mukerjee; Anne Dryden Witte; Sheila Hollowell
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.
Keywords: Child care; Cost functions; Profit-making organizations; Not-for-profit organizations
JEL Codes: J13; L31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| NPOs (L31) | average costs (J30) |
| staff-child ratio (J82) | total costs (PMOs) (D23) |
| staff-child ratio (J82) | total costs (NPOs) (L39) |
| experienced labor working for less than marginal product (J29) | inefficiencies in labor utilization (J22) |
| current forms of subsidies (H23) | costs for PMOs and NPOs (L39) |