INFORMATION PROVISION: Coefficient of Variation

Posted by Kathryn Schwartz on July 31, 2014

R&Rs significantly reduce price dispersion for infant and toddler care. Thus, we find that controlling for socio-demographics and market characteristics reverses the pattern observed in the raw data. The table below summarizes predicted effects along with standard errors, for markets with and without R&Rs. The presence of R&Rs reduces price dispersion by 75%, from 0.317 to 0.081, in markets for infant care, and it reduces price dispersion by 52%, from 0.313 to 0.150, in markets for toddler care. These findings are statistically significant and are consistent with the predicted effects of information provision. Moreover, they may be interpreted as evidence that parents of infants and toddlers who do value quality care highly are willing to bear greater search costs than parents who value child care quality less.

Predicted Coefficients of Variation

(Standard Errors in Parentheses)
There is some evidence that R&Rs reduce price dispersion for school-age care and no evidence that they affect dispersion of prices in the market for preschooler care. There are a number of potential explanation for the failure to find that a centralized source of information lowers the dispersion of prices for preschoolers and school-age care. Our model suggests either that parents who value high quality care are less willing to bear the transaction costs necessary to find high quality care for their older children.

These parents may be willing to expend less effort to find care for their older than their younger children either because their older children are more able to fend for themselves or because they are typically in care for fewer hours. It may also be that parents of older children are well informed about child care options, because they are more likely to have dealt with child care issues in the past. Consequently, parents of older children may not benefit from the services of R&Rs as much as parents of younger children.

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