Using a new data set, this paper finds that there is no quality difference between nonprofit and for-profit day care centers, and with the exception of one segment of the nonprofit sector, there is no efficiency difference. The cost of increasing the quality from mediocre to good is between 12 and 16 cents per child-hour.

    Centers have inelastic demand for workers. Child care workers with 13 to 15 years of education and workers with more than 16 years of edu­cation are substitutes; workers with more than 16 years of education are complements to workers with 12 or fewer years of education. There are economies of scale and scope in production.

The author is an associate professor of economics and the director of the Center for Research on Economic and Social Policy at the University of Colorado at Denver, and a research associate of the National Bureau of Economic Research. This paper is the revised version of NBER working paper no. 5293. It is supported by grants from the Carnegie Foundation of New York, the Packard Foundation, and the Pew Foundation to the University of Colorado at I)enver. Joseph Ron White, Danny Rees, and Sarah Price provided outstanding research assistance at every stage of the project, as did Tim Martin, Elena Pestchanskaia, and Erdal Tekin in final stages of data cleanup. Earlier versions of the paper were presented at the 1995 AEA Meetings in Washington, D.C., the 1995 Western Economic Association Meetings in San Diego, and at the University of Colorado at Denver. Anne Dryden Witte, Barbara Bergmann, Suzanne Helburn, John Morris, Alison Hagy, Bárbara Robles, W. James Smith, Madeline Mocan, Daniel I. Rees, and particularly Jeff Zax provided helpful discussions and suggestions. The author thanks two anonymous referees for insightful comments. Any opinions expressed here are those of the author and should not be assumed to be those of the granting agencies, the University of Colorado at Denver, or NBER. The data used in this article can be obtained beginning May 1998 through April 2001 from Naci Mocan. University of Colorado at Denver, Campus Box 181, P.O. Box 173364, Denver, Colorado 80217-3364.