Posted by Kathryn Schwartz on July 01, 2014

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.

While neither theory nor empirical work indicates that information provision will have its major impact on quality, we felt it important to examine the impact of information provision on quality. The decreases in prices and lessened price dispersion for younger children that we observe to be associated with centralized information provision may only be beneficial if they are not associated with lowered quality.

Wben firms compete in both price and costly quality, information provision that decreases price dispersion generally increases price competition. Firms may respond to the increased price competition by altering the quality of the products they provide. To explore the impact of information-induced decreases in price dispersion on quality, we estimate a reduced form model for the most widely followed observable measure of child care quality, the staffi’child ratio. We find that markets with R&Rs have distribution of staffi’child ratios that are insignificantly different from areas without R&Rs. We, of course, can say nothing about measures of quality that we do not observed (e.g., the environment of the care setting or the nature of the interaction between caregiver and child).

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