Optimal policies in the market for childcare: theory and evidence from Luxembourg


CALL: 2014

DOMAIN: SC - Social and Economic Cohesion






KEYWORDS: Childcare,Optimal policies,Policy evaluation,Households' decisions,Market structure andHedonic and macthing models.

START: 2015-05-01

END: 2018-04-30

WEBSITE: https://www.liser.lu/

Submitted Abstract

Childcare provision is an important societal challenge for developed countries. Given the numerous reasons for governments to promote the availability and quality of childcare services, there has been a dramatic increase in the number of available places in the last decade. Still, waiting lists remain in the childcare sector of most European countries.The childcare market is characterized by a complex heterogeneous supply composed of public, private and informal providers competing in prices and quality, and a heterogeneous demand. It is crucial to understand how this complex market structure is affected by different forms of public interventions, including direct provision, subsidization and regulations. Yet, little is known about “optimal” practices from a theoretical viewpoint. Are those policies efficient instruments to improve accessibility and quality? How do those policies affect demand, the behavior of private providers and the structure of the sector? This project aims at analyzing the childcare sector in order to assess the desirability and optimality of alternative policy measures.Our contribution will first consist of (1) a theoretical microeconomic model, which will incorporate the key features of the market. This model will allow us to address the initial questions: what is the optimal design of public policies? What are the expected (and less expected) impacts of existing policies in Luxembourg? The predictions derived from this general theory will then be confronted with the reality of the Luxembourgish childcare market following two distinct and complementary approaches. First, a structural analysis involving both the supply and demand sides of the market will be provided by means of a unifying matching-hedonic model, which will be developed and tested for Luxembourg (2.a). This method will provide structural estimates of households’ willingness to pay for childcare quality, and will allow us to evaluate the impact of various childcare policies such as quality standards and vouchers through counter factual analyses. The second approach will be based on advanced impact evaluation methods (2.b) to analyze the impact of the 2009 reform on formal childcare use and mothers’ labor supply.

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