We empirically estimate the effects of R&Rs on price dispersion, maximum price, and average price for care. We separately study the effects of information provision on market for the care of infants, toddlers, preschoolers, and school-age children because of inherent differences in care technologies, regulations and information feedback across the different age groups. Older children require less attention from caretakers, and these children are better able to provide parents with more information about the type of care they receive than are younger children. Parents of older children may also be more familiar with local child care options because they have been using child care for more years than parents of younger children. Consequently, information provision may be less useful to parents of older children.
We find that R&Rs have economically large and statistically significant effects on market prices for the care of the youngest children. Results indicate that markets with R&Rs have significantly lower price dispersion and lower maximum prices than markets without R&Rs for the care of infants and toddlers. The results also suggest that R&Rs reduce average prices for infant and toddler care, though these effects are not statistically significant at conventional levels. We find that R&Rs have no effect on the distribution of prices for the care of preschoolers. Finally, we find that R&Rs do not significantly affect price dispersion and average price, but do reduce the maximum price for school-age care. Our model allows us to interpret these results in terms of the relative willingness of parents who value quality care highly and those who value quality care less to bear the costs of searching for the type of care they prefer for their children.
Decreases in prices and decreases in price dispersion may only be beneficial if they are not associated with lower quality. Because of obvious data limitations, we cannot study the effects of information provision or intensified price competition on unobservable product quality. We do, however, study the effects of R&Rs on the distribution of staff/child ratios, an observable measure of quality that is believed to be an important determinant of care quality. We find generally that markets with R&Rs have stafi/child ratios that are insignificantly different from those in markets without R&Rs.
This paper extends the literature in a number of ways. First, it provides evidence on some potential effects of publicly supported information provision in markets with vertical differentiation. Currently policy proposals in the health and child care areas rely heavily on information provision to alleviate perceived market failures. It is believed that information provision in such market settings will help consumers locate service providers that best suit their needs. Our work indicates that information provision can have other beneficial effects as well. advance payday loans