Monthly Archives: July 2014

INFORMATION PROVISION: Model 3

Posted by Kathryn Schwartz on July 11, 2014
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With probability Vi, consumers arrive first at the high quality provider. These consumers buy from this
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INFORMATION PROVISION: Model 2

Posted by Kathryn Schwartz on July 09, 2014
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The demand side of the market consists of a continuum of consumers indexed by taste parameter 6 and uniformly distributed on [0,1]. We follow Rob (1985), Schwartz and Wilde (1985), and Chan andLeland (1986) and assume that consumers have different levels of willingness to search. In child care markets, parents’ willingness to search may vary with tastes and preferences, the perceived vulnerability of the child, the opportunity cost of time spent searching, the out-of-pocket costs of search, and the parents’ ability to process information. For simplicity, we assume that search costs, denoted x, can take one of two values: zL for parents with high willingness to search (i.e. low search costs) and xH for parents with low willingness to search (i.e. high search costs). Parents decide whether or not to buy, making no purchase or else buying from exactly one of the firms in the market. The value a consumer of type 0 places on quality level q is v(q, Qj = dq. The surplus of consumer 0 who purchases quality q and pays price p is therefore given by Qq – p.
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INFORMATION PROVISION: Model

Posted by Kathryn Schwartz on July 07, 2014
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To understand the effect of R&Rs on the distribution of prices for child care centers, we develop a model of search for a market with vertical differentiation. Reflecting the stylized facts of child care markets, consumers are imperfectly informed about both prices and product quality in our base model. We determine equilibrium prices and determine the average price, the maximum price and the dispersion of prices for this model. For comparison purposes, we also derive expressions for the average price, the maximum price and the dispersion of prices when parents are fully informed about both prices and the quality of available products. To determine the effect of information on prices, we compare the distribution of equilibrium prices when information is imperfect with the distribution of prices when parents are fully informed. We show conditions under which better information reduces price dispersion, maximum price, and average price.
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INFORMATION PROVISION: The Market for Child Care 2

Posted by Kathryn Schwartz on July 05, 2014
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R&Rs maintain and continually update their databases on prices, availability of care, and care characteristics for all centers (licensed and license exempt), licensed family day care homes, and some unlicensed family day care homes in their geographic areas. They provide most of their information via telephone, in response to parent inquires. Though different R&Rs offer different services, their central functions are to provide referrals and child care information and to counsel parents on strategies to find safe, convenient, and affordable care.’ The presence of R&Rs in some local areas, but not in others, allows us to examine the effect of a central source of market information on market outcomes.

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INFORMATION PROVISION: The Market for Child Care

Posted by Kathryn Schwartz on July 03, 2014
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We conclude that publicly or privately supported information provision can have beneficial effects. Most directly, information provision lowers consumer search costs. Both our theoretical and empirical work indicate that information provision can reduce price dispersion without eroding an important measure of observable quality.
The outline of the paper follows. In the next section, we describe important features of child care markets. In section 3, we develop our theoretical model, and in Section 4, we describe our data and empirical methodology. Section 5 contains a discussion of the impact of R&Rs and other factors on the distribution of market prices. Section 6 contains a discussion of the impact of R&Rs on the distribution of staff-child ratios. The final section contains our summary and conclusions.

The Market for Child Care

Unique features of child care markets allow us to examine the effects of information provision.6 These markets are very localized, because parents overwhelmingly prefer to have their children cared for in their own residential neighborhood (Maryland Committee for Children, 1996; Queralt and Witte, forthcoming). Care providers compete in both price and costly quality. Families incur substantial search costs to learn the prices and care characteristics of providers.
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INFORMATION PROVISION: Introduction 3

Posted by Kathryn Schwartz on July 01, 2014
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Our results provide support for the contention that the provision of information by not-for-profit or public agencies will impact the distribution of prices only when information asymmetries are substantial. To be more specific, we find that the dispersion of prices and the maximum observed price for the care of infants and toddlers are significantly lower in markets with R&Rs than in markets that do not have these information-providing agencies. By way of contrast, markets with and without R&Rs have virtually identical price distributions for the care of preschoolers (3 to 5 year old) and school-age children.
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