Posted by Kathryn Schwartz on June 29, 2014

We then exploit a unique feature of child care markets and a unique data set to examine empirically the effects of information provision by public and not-for-profit agencies. In some child care markets, Resource and Referral agencies (R&Rs) provide a centralized source of information on location, price, and observable characteristics of child care. R&Rs are generally grass roots, not-for-profit organizations whose primary function is to help parents find appropriate child care for their children. Consumers in markets with R&Rs can reasonably be assumed to have better information or lower search costs than consumers in markets that are not served by R&Rs. We study the effects of R&Rs on market outcomes using data from a diverse number of sources, including firm-level data from a nationally representative sample of child care centers, various compilations of child care policy variables, and two special surveys carried out for this project.

To determine the effect of R&Rs on the distribution of market prices, we define local child care markets. We partition centers into local geographic markets based on proximity in driving distance. Within each market, we obtain a price distribution and compute average price, maximum price, and the coefficient of variation for the price distribution. We regress these descriptors of local price distributions on a binary reflecting the presence of an R&R and other variables in the reduced form implied by a market model for child care.
Information provision can have differential effects on markets for the care of children of different ages. Information imperfections are greater for younger children, who can provide less information on the type of care received than older children. Moreover, parents of older children are more likely to be familiar with care options in their local area, as they are more likely to have used child care in the past. To allow for possible differential effects of information across age groups, we separately study markets for the care of infants, toddlers, preschoolers, and school-age children.

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