Child Care Center Quality Differences: The Role of Profit Status, Client Preferences, and Trust

Abstract

This study uses the Cost, Quality, and Child Outcomes in Child Care Centers data set to investigate the view that in a mixed industry providing complex services to poorly informed customers, for-profit producers provide lower quality than nonprofit producers by skimping on quality characteristics that buyers cannot easily observe. Results indicateno significant difference between for-profit and nonprofit centers in overall quality or in their tendency to skimp, except in North Carolina with its less stringent licensing requirements. When for-profit and nonprofit sectors are subdivided by ownership, however, for-profit chains and nonprofit centers operated by churches or community agencies produce significantly lower hard-to-observe quality than other nonprofit subsectors. In North Carolina, all for-profits, especially chains, produce lower hard-to-observe quality, suggesting that for-profit firms take advantage of low state licensing standards. These results indicate the importance of subdividing for-profit and nonprofit sectors to gain insight into industry performance, to design effective public policy, and to address the underlying problems of information asymmetry in the industry.