Is Quality Certification Effective? Evidence from the Childcare Market

Abstract

The ineffectiveness of a quality certification mechanism can be attributed to consumers' low willingness to pay for what certifiers consider high quality. Alternatively, it can be attributed to the inability of the certification status to provide consumers with information they do not already possess. I present a structural model of demand allowing consumers to infer quality from both the certification status and firm reputation. I then estimate this model to assess the effectiveness and the impact of the national accreditation system for childcare centers on consumer welfare. My results suggest that disregarding the endogeneity of firms' accreditation choices significantly underestimates the effectiveness of the accreditation system. Consumers do value quality as gauged by the accreditation agency, but on average they do not gain much information beyond what they have inferred from a firm's reputation. The estimates of structural parameters are then used to quantify the value of this information to consumers.