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Provision of child care: Cost functions for profit-making and not-for-profit day care centers


In this paper, we explore and compare the operation of profit making (PMOs) and not-for-profit (NPOs) day care centers using data from a random sample of Massachusetts day care centers. We find many differences in the characteristics of PMOs and NPOs. Most interestingly, NPOs pay significantly higher wages than PMOs although the staff of NPOs has aproximately the same education and less experience than the staff of PMOs. NPOs also have significantly more staff per child than PMOs. We estimate separate cost functions for PMOs and NPOs and find the parameters of these functions to be insignificant different imiplying that the higher observed costs for NPOs result from different input (e.g., paying higher wages) and output (e.g., more interaction and larger size) choices and not from differences in methods of operation. Finally, we find that current monetary and inkind subsidies have no significant effect on the costs of day care centers.

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Mukerjee, S., Witte, A.D. Provision of child care: Cost functions for profit-making and not-for-profit day care centers. J Prod Anal 4, 145–163 (1993).

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  • Cost Function
  • Care Center
  • Nonprofit Sector
  • Nonprofit Firm
  • Social Externality