Provision of Child Care: Cost Functions for Profit-Making and Not-for-Profit Day Care Centers
Ann Dryden Witte
This paper eatimates 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 (NPOa)
organizations. The results are discussed in the context of current NPO
literature. NPOs are found to be operating at higher average coats than PMOa
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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