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.
Centers compete with family child care homes, particularly for the care of young children (infants and toddlers) and school-age children. Both centers and family day care homes are subject to state and sometimes local regulations. State and local regulations specify minimum staff/child ratios and maximum group sizes by age of child. Centers are also subject to training requirements and minimum square footage requirements. They may also be required to carry liability insurance. Regulations are enforced by inspection.
In this paper, we focus on child care centers, the largest providers of non-parental care. Child care centers are best conceived of as multi-product firms, because children of different ages require quite different types of care. For example, preschoolers require supervision and developmental activities while infants require more basic care (e.g. changing diapers and feeding). Care for younger children is generally more labor intensive while care for older children requires more indoor and outdoor space. Consistent with this observation, centers maintain staff/child ratios for infants that are approximately half of those maintained for school-age children. See Table 1(a). Further, informational asymmetries are greater for younger than for older children. Older children are able to provide parents with far more useful and complete information on the type of care they receive. To overcome these substantial information problems, parents may search more thoroughly for the care arrangements of younger children than for care arrangements of older children. In addition, state and local regulations governing centers are different for different age groups, being more stringent for younger children.
To account for these structural differences in market forces across age groups, we study the effect of R&Rs separately for infants, toddlers, preschoolers, and school-age children.