Journal of Population Economics

, Volume 20, Issue 4, pp 743–780

Can consumers detect lemons? An empirical analysis of information asymmetry in the market for child care

Original Paper

Abstract

This paper tests adverse selection in the market for child care. A unique data set containing quality measures of various characteristics of child care provided by 746 rooms in 400 centers, as well as the evaluation of the same attributes by 3,490 affiliated consumers (parents) in the U.S., is employed. Comparisons of consumer evaluations of quality to actual quality show that after adjusting for scale effects, parents are weakly rational. The hypothesis of strong rationality is rejected, indicating that parents do not utilize all available information in forming their assessment of quality. The results demonstrate the existence of information asymmetry and adverse selection in the market, which provide an explanation for low average quality in the U.S. child care market.

Keywords

Rationality Child care Adverse selection 

JEL Classification

D2 L3 J13 

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Copyright information

© Springer-Verlag 2006

Authors and Affiliations

  1. 1.Department of EconomicsNational Bureau of Economic Research, University of Colorado at DenverDenverUSA

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