The price elasticity of child care demand: a sensitivity analysis.

Abstract

A major focus in the economics literature has been upon the sensitivity of child care demand to changes in the price of child care. The issue is of interest to economists because there have been proposals in recent years to change the structure of the child care subsidy system. Knowledge of the relevant price elasticities of child care demand can help policymakers decide among various proposals. Data from the 1990 National Child Care Survey the 1990 Profile in Child Care Settings and a contextual data file are used in an examination of the sensitivity of estimated price elasticities of child care demand to model specification sample selection and variable measurement. Study results suggest that all of those factors have contributed to the variation in estimated price elasticities in the literature. Future work should use data sets with comprehensive information on child care choices and costs. Studying child care demand using rational choice models seems to have many selectivity problems and better data may be the only way to generate solid estimates of the relevant elasticities.