Abstract:
Nonprofit child care centres are frequently observed to produce child care which is, on average, of higher quality than care provided in commercial child care centres, but there is also contrary evidence. Nonprofit centres may have an advantage in providing difficult-to-observe quality that benefits children, because they do not have incentive conflicts. However, where nonprofit and for-profit child care firms compete in the same local markets, we speculate that this advantage should only appear where demand is sufficiently "thick" to permit a quality differentiation strategy to be financially viable for nonprofits. Ignoring this issue, we estimate the effect of nonprofit status on quality, controlling for differences in staff and centre inputs, differences in financial resources available to the centre, and differences in the clientele served. In this conventional examination, nonprofit status has a moderately positive impact on quality, but statistically insignificant when all controls are included. However, when we account for the unobserved heterogeneity and separate markets into "thick" and "thin", a strong nonprofit advantage is found in thick markets.